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FTSE falls and Carillion crashes as debt bites

Third profit warning in a year and warning covenants with lenders could be breached send shares in troubled construction company tumbling.

FTSE falls and Carillion crashes as debt bites

Shares in Carillion (CLLN) have crashed after the troubled construction and services company issued its third profit warning in a year and said it expected to breach covenants with lenders.

The stock tumbled to the bottom of the FTSE Small Cap index, down 37.6% at 25.9p, having opened 59% down.

Carillion said it expected to breach covenants at the end of the year, and had extended financing agreements until the end of April after talks with its lenders.

By that time, the group hopes to have completed a recapitalisation plan, which it said would be announced 'in due course'.

'Whilst we continue to target cash collections, reduce costs, execute disposals and focus on delivering for our customers, it is clear that significant challenges remain and more needs to be done to reduce debt and rebuild the balance sheet,' said interim chief executive Keith Cochrane.

Shares in Carillion are down 89% this year as the company struggles to deal with mounting costs on its construction contracts.

In interim results issued in September, the group had forecast meeting covenants in December.

But it said that since then 'delays to certain public private partnership disposals, a slippage in the commencement date of a significant project in the Middle east and lower-than-expected margin improvements across a small number of UK support services contracts... will lead to profits for the year to 31 December 2017 being materially lower than current market expectations'.

Liberum analyst Joe Brent said he expected the group's recapitalisation would take the form of a debt-for-equity swap. 

'We believe that at least one of the banks has already written off part of the debt. Equity does not normally have much value in these circumstances,' he said.

Peel Hunt analyst Andrew Nusset suspended his rating on the company and said he saw 'little value currently for equity holders'.

Nicholas Hyett, equity analyst at Hargreaves Lansdown said Carillion had proved a 'horror show' for investors.

'Some sort of recapitalisation was inevitable, but a possible debt for equity swap, with debt even higher than the group had anticipated, is probably as bad as anyone would have guessed,' he said.

'The group has made some progress on asset sales, and it sounds like some cost savings are being made. It’s not what the group expected though, and it’s clearly not enough. It’s also probably irrelevant given the state of the balance sheet, with net debt already many multiples of the group’s market capitalisation.'

Carillion's crash overshadowed other market moves. The FTSE 100 fell 10 points to 7,377, with United Utilities (UU) the biggest faller, down 4.4% at 797.5p after analysts at HSBC downgraded the stock to 'hold' from 'buy'.

Sky (SKYB) was the biggest riser, up 3% at 930p, after Reuters reported US media groups Comcast and Verizon were eyeing a bid for Twenty-First Century Fox assets including the broadcaster.

7 comments so far. Why not have your say?

John Gardiner

Nov 17, 2017 at 18:34

All I can say is that I am relieved that I got out at 195p back in the Summer after receiving their increased final dividend.

As an investor of some fifty years I just feel "what comes around, goes around"

........... c'est la vie

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Nov 18, 2017 at 10:19

Looks like they are going the same way as Connaught. Increasing dividends out of borrowing to keep the sp up while cutting margins to maintain cash flow. They are in a much worse state than Balfour Beatty were 3 years ago and they only just scraped through. Some good bargains to be had in the fire sale though!

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Nov 18, 2017 at 16:40

@John Gardiner - given that the share price only briefly touched £1.89 at the depth of the 2007/08 recession, quickly climbed back to over £2.50, and then up to £4.00, unless you have had the shares for a very long time you must have taken a significant hit when you sold. I dumped my holding a year ago at £2.52 and still came out with a small net loss even after all the dividends.

I cursed myself then as it had been fairly clear since mid 2015 that CLLN was on the slide, and their accounts showed that they were trading on tiny margins, as well as using end of year financial engineering to make the debts look smaller. But the attractions of the dividend! A classic value trap, and of course the temptation for all of us is to hold on hoping there will be a recovery.

@JonS I think they are in a much worse position than BB were, and I agree with the view that there is a good chance that the shares will end up worthless.

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John Gardiner

Nov 18, 2017 at 17:28

@horshamtim - Yes I did take a significant hit on Carillion, however I have switched and re-invested and will recover my losses and already have recovered my income.

Back in 2008/2009 I lost a large bundle on Bank shares, switched to Insurances and recovered all within three years and significantly increased my income.

As a very long term investor you learn to take hard losses on the chin and switch and generally recover in time. All grist to the mill!

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Steve L. Jones

Nov 19, 2017 at 00:47

Wish I'd got out too, But my investments have been compulsorily transferred from Barclays' old, easily usable sharedealing system to the weird abortion which they replaced it with, and laughably named "Smart Investor"--an uninformative shambles, almost impossible to use (and, typically, unexplained to its victims by its inventors). I just gave up watching my shares. More fool me. Though bigger fool not to have walked out of Barclays as soon as other investors began revealing just how worthless Dumb Investor was.

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Nov 19, 2017 at 08:04

@ John Gardiner Agreed - any investor who claims they don't make mistakes/make losses from time to time is either very lucky, very good, or fibbing! The posts on sites such as this tend to be about the successes rather than the failures. As I said in my last comment, the software I use threw up some warning signals in 2015 and if I had sold out then I would have made a profit. While I am glad that I avoided the cliff edge this time, and like you have re-invested the proceeds, I would have been happier not to have made a loss - my fault because I thought I knew better!

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Nov 20, 2017 at 14:05


Although I have never held Carillion, could I join your "I thought I knew better club"!?

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