Will Interserve plc soar after £35 million contract win?

Does Interserve plc (LON:IRV) (IRV.L) offer investment potential after today’s news?




Interserve
Interserve

Interserve plc (LON:IRV) (IRV.L) has released details of a £35 million contract win today. It is a 5-year contract to deliver total facilities management services for the Barking, Havering & Redbridge University Hospitals NHS Trust.

The company is set to deliver retail and patient catering, cleaning, security, front of house, waste management, portering and repair and maintenance services to the 450-bed King George Hospital site based in Redbridge. It is one of the largest providers of healthcare facilities in the UK.

The Interserve share price has responded reasonably positively to the news. It is currently up around 2% at the time of writing.

In my view, the news is positive for the company. It shows that while trading conditions may be tough, it is still able to win new business. Further developments in this area could cause investor sentiment to improve further, which may be able to boost the company’s share price performance.

Of course, the outlook for the stock continues to be mixed. Over the next two years it is due to record a fall in EPS of 50% this year, with growth of 33% forecast for the 2019 financial year.

This suggests that there is scope for an improvement in investor sentiment, although the stock market continues to apply a large margin of safety when it comes to the company’s valuation. It has a forward PE ratio of 5, which is due to fall to 4 using next year’s EPS growth forecast. This is one of the lowest PE ratios I can find across the FTSE All-Share, and indicates that there could be difficulties ahead.

With Interserve having a relatively large debt on its balance sheet, I think it continues to be a risky stock. Alongside the challenges it faces in the wider industry, this could make its future less certain. As a result, I’m still bearish on its outlook, and I am awaiting further news regarding its potential turnaround.




About Robert Stephens 3883 Articles
Robert Stephens is a CFA Charterholder and an Equity Analyst by trade. He is a passionate private investor who has been buying and selling shares for many years, owning a wide range of UK shares in the process. He has written for Citywire and The Motley Fool US and now runs his own business. To contact Robert, please email [email protected] or use one of the other contact methods available on the 'Contact Us' page