Interserve Plc – Value Analysis (LONDON:IRV) : December 19, 2017

Capitalcube gives Interserve Plc a score of 28.

Our analysis is based on comparing Interserve Plc with the following peers – Carillion plc, Kier Group plc, Henry Boot PLC, Keller Group plc, Morgan Sindall Group plc, Costain Group PLC, Balfour Beatty plc, Babcock International Group PLC and Hochtief AG (CLLN-GB, KIE-GB, BOOT-GB, KLR-GB, MGNS-GB, COST-GB, BBY-GB, BAB-GB and HOT-DE).

Investment Outlook

Interserve Plc has a fundamental score of 28 and has a relative valuation of UNDERVALUED.

Fundamental Score

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Company Overview

  • Compared to peers, relative underperformance over the last year is in contrast with the more recent outperformance.
  • It trades at a lower Price/Book multiple (0.35) than its peer median (1.89).
  • IRV-GB‘s EBITDA-based price multiple implies slower growth than its peers despite its current comparatively high EBITDA-based returns.
  • IRV-GB has relatively low profit margins and median asset efficiency.
  • Compared with its chosen peers, the company’s annual revenues and earnings change at a slower rate, implying a lack of strategic focus and/or lack of execution success.
  • Over the last five years, IRV-GB‘s return on assets has eroded from above median to below median among its peers suggesting declining relative operating performance.
  • Company appears to give away relatively high gross margins to relatively high operating costs suggesting a differentiated product portfolio with low pre-tax margins relative to peers.
  • While IRV-GB‘s revenue growth in recent years has been above the peer median, the stock’s Price/EBITDA ratio is less than the peer median suggesting that the company’s earnings may be peaking and the market expects a decline in its growth expectations.
  • The company’s capital investment program and to-date returns suggest that the company is likely making big bets on the future.
  • IRV-GB seems to be constrained by the current level of debt.

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Leverage & Liquidity

IRV-GB is debt-constrained.

  • With debt at a relatively high 80.93% of its enterprise value compared to an overall benchmark of 25% (Note: The peer median is currently 33.76%), and interest coverage level of 2.43x, IRV-GB seems debt-constrained.
  • All 9 peers for the company have an outstanding debt balance.

IRV-GB has moved to a relatively high leverage from an Some Capacity profile at the prior year-end.

  • IRV-GB‘s interest coverage is its lowest over the last four years and compares to a high of 6.05x in 2013.
  • Though its interest coverage decreased to 2.43x from 3.09x (in 2015), its peer median remained relatively stable during this period at 5.54x.
  • Interest coverage fell 0.83 points relative to peers. It is also below the 2.50x coverage benchmark unlike the peer median.
  • IRV-GB‘s debt-EV is its highest over the last four years and compares to a low of 10.77% in 2012.
  • The increase in its debt-EV to 80.93% from 39.32% (in 2015) was also accompanied by an increase in its peer median during this period to 33.76% from 30.37%.
  • Relative to peers, debt-EV rose 38.22 percentage points.

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Key Liquidity Items

Company Debt/Enterprise Value (%) Current Ratio Interest Coverage (x) Cash Flow To Total Debt (%)
Carillion plc 70.46 0.74 -2.49 8.5
Kier Group plc 49.48 1.09 4.85 43.21
Henry Boot PLC 13.83 1.67 28.76 74.55
Keller Group plc 38.45 1.54 7.62 39.19
Morgan Sindall Group plc 3.57 1 11.55 301.89
Costain Group PLC 20.29 1.18 9 66.93
Balfour Beatty plc 51.33 0.93 0.14 3.21
Babcock International Group PLC 26.63 0.93 6.22 31
Hochtief AG 29.06 1.23 3.08 37.62
Interserve Plc 80.93 1.15 2.43 -1.82
Peer Median 33.76 1.12 5.54 38.4
Best In Class 3.57 1.67 28.76 301.89

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Company Profile

Interserve Plc engages in the business of real estate. It operates through the following segments: Support Services, Construction and Equipment Services, and Group Services. The Support Services segment provides management and delivery of operations services to both public and private-sector clients in the United Kingdom and international. The Construction, and Equipment Services segment offers design, development, consultancy and construction services in the field of building and infrastructure projects, as well as design, hiring and sale of formwork and falsework solutions. The Group Services relates to financing and central bidding activities. The company was founded in 1884 and is headquartered in Reading, the United Kingdom.

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