Cable & Wireless Worldwide issues profit warning, with construction and consultancy companies told to expect similar warnings following the government’s austerity drive
Cable & Wireless Worldwide yesterday became the first major company to issue a profit warning following the coalition government’s recent austerity budget.
Experts are predicting that shareholders in the construction and consultancy industries should expect similar warnings as the effects of plans to cut £113bn from public sector spending by 2014/5 become clear.
Already companies such as Connaught, the social housing maintenance group, and Mouchel, the outsourcing specialist, have warned that profits will be hit as the government squeezes contracts.
Connaught predicts that decisions by local authorities to defer contracts will take £13m of this year’s profits, while Mouchel has seen share prices fall steadily since June.
Analysts have questioned the extent to which government cuts are already factored into market forecasts and share prices, while warning of a knock-on effect through the wider economy as companies servicing the construction industry see demand for their services dry up.
However, Michael Parkinson, head of research at corporate advisors Brewin Dolphin, stated that opportunities still exist in the public sector, particularly for support services firms as the government strives for efficiency.
Parkinson said: “There has been a bit of a resurgence in the share prices of companies such as Capita and Serco and outsourcing certainly presents opportunities.”
“The reality is that any company servicing the government is at risk. I don’t think anyone will come out of this unscathed, but the question is, how will companies respond to the opportunities that are out there?”