Analysts predict two more years of suppressed profit as cuts to road schemes bite

Mouchel’s underlying profit will fall for at least another year, analysts predict, after it recorded a £14.7m pre-tax loss.

Last week the company scrapped its dividend, after which its share price dived by more than a third amid fears that it would be heavily exposed to cuts in UK public sector work.

“It’s getting towards being a 100% UK business and 100% public sector,” said analyst Chris Banbury at KBC Peel Hunt.

Mouchel’s underlying profit of £30.5m this year was wiped out by redundancy costs and write-downs in the Middle East.

UK Motorway, M62 - Empty, Traffic Free

ARGTM8 UK Motorway, M62 - Empty, Traffic Free

Mouchel in numbers:
Order book 2009 £1,863m
2010 £1,824m
% 2010 revenue from highways 40
% 2010 revenue from government and business services 37
% of 2010 revenue from UK 97

Banbury predicted that it would shrink further next year to £28.4m, and not recover to 2010 levels until after 2012.In results announced last Friday the firm revealed that £45.2m of exceptional items had turned the underlying £30.5m profit into a £14.7m loss in the year to 31 July. Revenue fell by 15% to £632.6m.

Tony Williams, an analyst at Building Value, said because almost half the firm’s profits came from the highways sector, the £1.3bn of cuts and delays to road schemes announced last week would suppress profits for the next two years.

“As the Highways Agency expenditure begins to bite, it will have an impact. 2012 is going to be even tougher [than 2011],” he said.

The company laid off about 2,000 staff last year, which racked up £22m in redundancy costs. Andrew Brown, an analyst at Panmure Gordon, said the completion of this process meant that the consultant was facing lower exceptional costs next year, but it could not afford another big round of redundancies.

“Professional people are expensive to get rid of, which accounted for much of last year’s cost. Next year the exceptional items should be much lower. But the profit prospects for the next six months remain muted.

“If they are having to cut staff on an annual basis, then either they are in the wrong business or they are overstaffed,” he said.