Interserve’s (IRV) problems keep getting worse; and there could be more bad news to come. Its share price is down 30% in the past month and we see scope for further downside in the near future. Avoid at 233.25p.

The support services group was sacked by waste provider Viridor in November 2016 for failing to meet contract delivery milestones on an energy-from-waste project in Scotland. It’s the second time Interserve has been fired from an EfW plant, having lost a contract in Worcestershire in 2015.

Interserve earlier this week said it had underestimated the costs of the Scottish debacle and six projects it quit last year, thereby increasing its provision from £70m to £160m. The matter is heading to the courts with the company warning that it expects ‘a lengthy period of litigation’.

‘We can have no confidence the provision is adequate,’ says investment bank Liberum. It notes the company failed to comment on trading elsewhere in the business, adding that Interserve faces a ‘whole range of trading challenges’ across the group.

Average net debt is expected to balloon to £450m in 2017 which puts pressure on the company’s balance sheet. Analysts reckon the company will cut its dividend by up to half at results on 28 February. Current forecasts imply the company has an 11.2% dividend yield. That certainly looks too high given everything that’s going on. (DC)

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