Analysts sounded like they were auditioning to write Hollywood movie taglines this morning as news of Carillion’s fresh woes were revealed.
“Just when you think things cannot get worse,” said ETX Capital’s Neil Wilson. Or, as Hargreaves Lansdown analyst Nicholas Hyett put it: “The Carillion horror show continues.”
If only this was fiction.
The financial state of the UK’s second-biggest contractor remains deeply troubling. At one point this morning Carillion’s shares plummeted 53 per cent to a new low of 19p, after issuing a fresh warning and revealing it will breach its banking covenants.
Speaking to analysts today, there was surprise Carillion’s share price had taken such a sharp dive. Part of this could be down to the fact it has still not said exactly where it expects full-year earnings to end up. Remember that its half-year pre-tax loss was £1.15bn.
Full-year net debt meanwhile will be around £900m, which is slightly worse than previously expected.
Carillion is attempting to shore up its balance sheet with disposals and chasing money on contracts. But today it warned that asset sales have not proceeded as quickly as planned, while collection of cash from contracts and the start of a major Middle East contract have been delayed. In the UK, meanwhile, margin improvements on service contracts have been less than expected.
“All of which is hardly a major surprise to those watching the meltdown from the sidelines,” Mr Wilson said.
Carillion has said it hopes to get its lenders to push the test date for its covenants back to 30 April. As Mr Wilson added, though: “They better hope for some generous bankers.”
Disposals may not be sufficient, particularly as Carillion is “selling things on the cheap”, he added. The firm sold its UK healthcare business to Serco for £50m last month, but Mr Wilson said it had “ditched a very high-margin business for peanuts”.
Carillon has to get net debt to around £350m, but asset sales will only bring in around £300m, according to the analyst. “The numbers are increasingly not adding up for Carillion,” he said. Or as Hargreaves’ Mr Hyett said: “It’s clearly not enough.”
So what next?
A debt-for-equity swap still appears the most likely option, according to analysts. And there remains a general consensus that Carillion will survive.
As Applied Value analyst Stephen Rawlinson said: “It’s in everyone’s interest for Carillion to survive. It has JVs with some major rivals.”
The firm is also still winning contracts; deals on HS2, Network Rail and contracts for its Oman JV will all add to the coffers.
“Some investors might think this is the end, but Carillion is too big to fail,” Mr Wilson says.
Carillion’s rivals – as well as its staff, subbies, shareholders, the government and its incoming chief executive – will continue to hope this is the case.