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Bill - Do we have a workable deal here?
Firstly, my calculations are similar to yours. Based on this statement "Coltrane’s proposal would give only 65 per cent of the company to creditors, in exchange for £436 million of debt, providing shareholders with 10 per cent of the share capital as opposed to 2.5 per cent, and the opportunity to participate in a 25 per cent rights issue worth £75 million."
I understand this to mean :
Lenders get 975m shares @ 44.7p = £436m
Existing shareholders get 150m shares @ 44.7p = £67m
Coltrane through RI get 375m shares but not @ 44.7p which would = £167m
They offer these shares at a 65% discount at 20p per share = £75m
The total post DfE value of Interserve = £578m
Divide by 1.5bn shares = post Dfe SP of 38.5p
Lenders take a 6.2p per share hit by 975m shares = just over £60m (unless they partake in the RI, that could reduce this)
Debt converted = £755M less 436m = £319M remaining DEBT (possible put on RMD - less than the original £350m plan)
The debt could be reduced further using the RI £75m) = £244m debt but I suspect Interserve want this as cashflow.
It all appears to stack except, I think the Lenders will play hard ball - I do think a pre-pack administration is an empty threat, where everyone including the Lenders lose.
But I expect the Lenders / Coltrane will negotiate something in between - possibly 7.5% for existing shareholders
Without doing the exact calcs, I guess this would leave the SP in the region of 33p (twice what it currently is).......
Lets hope Coltrane push it through - in reality the Lenders will get every penny back when the SP rises by 6p after the DfE with low debt, EfW behind them, EBITDA of £170m to £175m, £3bn annual turnover and £7bn forward secured.
If it holds above 10p this morning - suggest very strong buy!
A possible assessment of what will happen – intelligent comment / critique are welcome – one line negativity will be ignored.
Fact : When a public company disseminates its intention to issue new shares, it dilutes its current pool of equity long before it actually does.
What affects the post DfE share price will be the companies’ valuation of this enlargement of shares.
Is the underlying Interserve Business profitable?
In Interserve’s situation they appear to have an underlying profitable Business that will contribute operating profit of between of circa £120m this year.
Previous “goodwill” from poor acquisitions has now been accounted for. All EfW Projects are now operational.
With the exception of some low profit long term FM projects on their books to run their course, they will now have a fairly clean slate post DfE.
All these factors will be key in the final DfE agreement between the Company, Key Shareholders and Lenders.
If we currently exclude any deal involving RMD (which should better the short term outcome for existing Shareholders), a calculation as follows may be reasonable:
Interserve's current Net Assets = £50m and the Total Shares in existence are 150m = 33p SP ( a low estimate based on half yearly results and prior to the current dilution, that has already taken place).
To wipe out £450m of debt, the lenders will take some pain (receiving shares valued at 75% of their debt)
So debt holders will receive new shares worth 337.5m and this is equivalent to 1bn new shares being issued to them.
The total sharepool therefore becomes 1.15bn shares
Total shares = 1.15bn (a dilution of 7.7 shares for every 1 existing share)
The 33p share could therefore be diluted to 4.3p.
But the Post dilution Net Assets will be £500m and Total number of Shares at 1.15bn = 33p SP
Potential earnings per share will be reduced, but consider the post-dfe valuation of the Business with a 1.5 x net debt / EBITDA.
The post dilution SP will be somewhere between 4.3p and 33p hence the current price of 12p is probably on the low side.
The company has then “reset” itself and needs to achieve its targets in the future to try and raise it share price to previous levels – this will most likely be a long haul – but that opportunity will still be there and existing shareholders if patient have not been “wiped out” as some have suggested.
Educated comment welcome.
Let's hope the BoD don' just hand the company to the lenders but actually put up a fight to support the existing shareholders and Employees
Be good to get some sort of communication soon on this!
If an RNS is put out in Jan to the effect they have done a great job and saved the Business, but handed everything over to the lenders at the expense of current shareholders many of which are their own Employees ......you would have to question if they really have saved the Business
Need communication!
Mrmaths
That seems quite low isn't that at the level they were after the banking crash.
Is it really that bad now?
HH
You are correct about eggs & baskets. Also the PIs are a similar % to the Insiders, leaving Institutions & Hedge funds with the remainder. We could never find out..... but I would guess that at least 50% of the PIs are also insiders, taking the total % held by Interserve Employees to circa 22.5%.
It could be an interesting paradox that the refinancing deal that saves the company actually destroys it.
King Arthur,
It was just the first two disposals I was referring to. Certainly more to come though...
HeresHopin
There has to be a large number's of employees...guessing middle managers and senior managers definitely that have took part in the numerous share schemes over many years and left the shares as their nest egg. This would explain why Employees own circa 15% of the shares. As BT59 rightly stated the rights in these schemes have been exercised.
I imagine that any BoD which did a deal that wiped out these company initiated investments would need to weigh up the possible consequences.
Agree on timings and that it would have been better earlier.
Do you think maybe one of the lenders leaked out the DfE discussions telling the media it was a "rescue deal" to orchestrate the SP drop to devalue the company and take control?
It appears that the news leaking and the SP drop, caught the BoD by surprise and has resulted in them being in a weaker negotiating position to refinance (which was always going to be the stated plan).
The Bod need to toughen up now and support the existing shareholders and not write them off in the deal. The future lower debt company will be profitable and they need to consider this carefully. Two pressures on the Bod will be Standard Life and the fact that circa 15% of shares are owned within Interserve. I would expect that if DW writes off her own employees then there could be a big exodus from Interserve. I expect this may sharpen the BoDs negotiating skills in the refinancing negotiations.
BillTucker89
possibly one at £25m & one at £40m
King Arthur
Another knowledgable post.
I agree that Interserve do have a number of options and are still a very profitable business. This is what other posters have struggled to understand.
I think a type of D4E is still the most likely option, but crucially at Interserve''s terms and not just the lenders. I also believe the SP already reflects the post D4E value (lots more shares, but massively lower debt, EfW insurance income on its way - understand Glasgow insurance payout now agreed - others to follow, non core sell-offs to come, significant improved profit this year, Fitness For Growth over achieving promised savings, best debt to EBITA ratio in the sector following D4E etc...)
I am confident they will keep hold of RMD and believe that's the best option for the future.
The lenders are now stating they are very supportive of Interserves' plans as well as the Government. Both as you state have carried out audit after audit.
Looking forward to the next RNS, hopefully will not be too long after Christmas
The fat lady may have had to put a cork in it!
Looking forward to finding out.
KingArthur,
Spot on with your post.
The comments by labour are an utter disgrace. If you worked for Interserve you must be thinking publiciity couldn't get much worse at the moment.
Corbyn must be a complete ******, trying to score political points at the Employees expense.
This company will actually survive, but the workforce should not forget labour's comments.
Debt reduction / refinancing has been factored into the SP for a long time...
Day traders posting wanting PI's to sell off cheaply and lower SP further
The company will not go bump, as suggested by lots of helpful posters
They will be stronger after 1st Qtr with a better long term refinancing deal than the present one - this was always the stated plan.
The "diluted" SP will then recover over a lengthy period of time and the brave ones could recover their investments.
Labour suggesting that Contracts should not be given to Interserve are really supporting the Working Class - they should be proud of the political point they have scored - at their supporters expense......
The rate of job creation in the construction industry was the fastest since December 2015 and business confidence has rebounded a little from the near six-year low seen in October. The latest reading signalled the strongest degree of confidence for three months.
The seasonally adjusted IHS Markit/CIPS UK Construction Total Activity Index – what they used to call the purchasing managers’ index, or PMI – registered 53.4 the highest score since July. The latest reading signalled the strongest degree of confidence for three months.
Growing demand for construction inputs led to another sharp rise in input prices during November.. The overall rate of input price inflation was the fastest since June.
November data indicates that the UK construction sector remains in expansion mode, with resilient business activity trends seen for housing, commercial and civil engineering activity. The latest overall rise in construction output was the fastest since July.
“Higher levels of new work were recorded for the sixth month running in November, which resulted in a robust and accelerated rise in staffing numbers. The latest upturn in employment was the fastest for almost three years.
Can only be good news for Interserve......
A new report on the UK facilities management outsourcing market from MTW Research suggests outsourcing will grow by £2 billion in 2019, with the FM market forecast to rise by more than £10 billion by 2022..
Can only be good news for Interserve............
It only drops if private investors get nervous again, when it is talked down by the shorters for their own purposes
Construction division has announced a major contract win for work on residential villas in UmmSuqeim. It has been awarded this project by one of their loyal ‘blue chip’ clients Easa Saleh Al Gurg (ESAG). This win is a repeat business for Khansaheb which is anticipated to start in Nov’18 and will continue for the next 15 months.
Located at Umm Suqeim in the Jumeirah Beach area, this project has 78 residential villas, a fitness centre, outdoor swimming pool, tennis court, community centre. There are two types of villas, each being two-story and semi-detached. The development has a total BUA of approximately 30,682 square meters.
long term finance in place, no risk of a carillion, share price massively oversold, major sales on way reducing debt significantly, insurance returns not factored into ballance sheets...
There maybe ups & downs through day trading / poor press along the way - but in reality this share is the best opportunity on the stock market for a major return.
Big Contract win in UAE
Meta - I will give you one tip........buy today
GLA
Meta - surely it doesn't make any difference to you, who "wrote off" this business long ago?
Unless you are shorting which you state you are not?
Bill - Yes significant disposals to come
I hadn't included Spain in my previous post.
Meta - keep fishing