City analysts say profit warning at White Young Green is a sign of things to come
Lawrie Haynes must be ruing the timing of White Young Green’s rebranding this month.
The consultant engineer unveiled its sleek new look on 10 November but the announcement was overshadowed by a profit warning three days later.
The press conference to unveil the logo was hastily scrapped, although the official line was that Haynes, the company’s chief executive, had been called abroad.
Either way, the revelation that the £282m-turnover group’s profit would be hit was the first hard evidence that things were getting tough for consultant engineers.
Francesca Raleigh, an analyst at Numis Securities, said it was no great surprise. “We were all expecting this, given White Young Green’s (WYG) high exposure to the private sector in the UK and Ireland.”
David Brockton at Arbuthnot Securities said the profit warning prompted a rethink of the whole sector. “The statement showed we’re probably not at the bottom yet and nobody is immune. Growth forecasts will need to be tempered.”
He subsequently changed his “buy” recommendation to “neutral” on fellow consultant engineers Hyder Consulting, Scott Wilson and WSP.
A look at the numbers shows that the support services sector has underperformed in the stock market by 8% over the past two months.
Raleigh says: “Within the sector, the average underperformance of the consultant engineers is about 30%, with WYG the worst at 48%. They’ve all had a rocky ride recently.”
Brockton is more forceful and says trading at many companies fell off a cliff in October. Nick Taylor, chief executive of Waterman, the £136m-turnover engineering and environmental consultant, agrees, although he puts it less dramatically. He refers to a “hardening of the market” since September.
The statement showed we’re not at the bottom yet and nobody is immune.
David Brockton, Arbuthnot
These comments echo those made by Garvis Snook, chief executive of support services and contracting group Rok, earlier this month. Snook said: “It was as if the lights went out right across the UK at the start of October.”
Taylor believes margins will be squeezed over the next year. He says: “There is great uncertainty and no company has clarity for 2009.”
Raleigh adds: “Consultants are in reasonably good shape but we’re seeing them work through existing projects at the moment. It will be interesting to see who wins what and at what margin.”
Nelson Ogunshakin, chief executive of the Association for Consultancy and Engineering, concedes that times are tougher but says the situation is “far from a meltdown”.
“This is not a situation like the housebuilders and I can’t foresee a major casualty at this stage. Consultants are not generally highly geared and just rely on the client paying on time and not making too many design changes.”
He says the industry will have to trim staff to survive but warns against large-scale culls. “We’ve spent the past few years training these people – it would be a waste to lose them.”
He won’t be drawn on the level of cuts made so far but industry experts point to a figure of between 5% and 10%.
In addition to the well-known areas of education and health, Taylor believes the markets for waste management and transfer and mid-range hotels are also holding up well.
In terms of where the work is, he says it is still all about the Middle East, despite signs of a slowdown in Dubai. He says: “More work will come from Abu Dhabi, Bahrain and Qatar.”
Geoff Allum, an analyst at KBC Peel Hunt, is upbeat about the long-term value of the sector. He says: “With values for the UK’s respected consultancies a third of their level a year ago, they will be attractive investments as soon as the outlook becomes clearer.”