Future uncertain as Carillion’s market value plunges

The future of the UK’s second biggest contractor, Carillion, looked uncertain today as its share price continued plunging after Monday’s shock profit warning.

Analysts worried that its market value was now less than half its debt load and that measures announced to correct its balance sheet – branded by one analyst as "a mess" – were inadequate.

Shares in the contracting and services group have plunged by more than 60% since it shocked the market on Monday with its revelation of an £845m hole in its finances needed to cover a suite of problem contracts.

Its share price entered the weekend at 192.10p but by mid-day today had fallen to 69.85p.

Its market value last night stood at £335m, while its average net borrowing in the first half was £695m.

Analysts said yesterday that the £205m savings it sought from suspending dividend pay-outs this year and by getting out of Qatar, Saudi Arabia and Egypt would not be enough to bring its debt into line.

Investors are also looking nervously at Carillion’s pension obligations, reported newspaper The Times.

Analyst Liberum said that the measures to correct its balance sheet, which it branded "a mess", were inadequate.

"None of these are anything like sufficient in the context of the about £900 million second-half average net debt," its analysts said in a note, the Times reported. Liberum that it was "hard to see a solution without equity".

Morgan Stanley said that the group had limited "trophy assets that can realise value", while Andrew Gibbs, an RBC analyst, told the Times that the shortfall was so great that Carillion might need a £500m rights issue.

UBS said that Carillion’s options included selling assets, raising equity or converting debt into equity. "The potential outcome for current shareholders remains highly uncertain at this stage," it said in a note.

Image: Shares in the contracting and services group have plunged by more than 60% since Monday’s shock announcement (Image from Carillion)