After watching a performance of then child actress Bonnie Langford during which a horse defecated on stage, Noel Coward observed: “If they had shoved the child’s head up the horse’s arse, they would have solved two problems at once.”
Some believe George Osborne’s Budget is being used to serve the purpose suggested for Langford’s head for the problems emanating from social housing maintenance firm Connaught. Connaught’s share price went into freefall (down 64% by Wednesday lunchtime) following last Friday’s late profit warning, in which the group lowered its estimates for both this year and next because of cuts unveiled in last week’s Budget.
This week the company reiterated the fact its numbers had been hit by 31 specific but unnamed contracts because of its Decent Homes legacy.
But the more cynical in the Square Mile wondered if the Budget offered Connaught a handy blanket to cover a number of its problems. Social housing rival Mears, whose share price was dragged south with Connaught’s, was in no doubt. Alan Long, its development director, said: “It’s very much Connaught’s performance, not the market’s.”
Kevin Cammack at Cenkos Securities added: “I’m pretty sure Connaught’s issues are 90% company specific, but I would not expect investors to be clamouring to support either Mears or Kier until the [public sector] position is clearer.”
Concerns about Connaught’s accounting practices have been buzzing around the City for a while, and last month, before the profit warning, Investec analyst Guy Hewett issued a note highlighting the fact that Connaught was “more aggressive” than its peers when recognising profit. There was also the abrupt departure of chief executive Mark Davies in January and the ensuing management shake-up.
Andy Brown at Panmure was in a slightly more forgiving mood. “The question is whether Connaught is seeing things early, or whether there are more ingrained issues at the company.”