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The support services market is attractive to investors and is underpinned by a fundamental trend: the growth of outsourcing. But it’s large and various, so there’s room for the good, the bad and the ugly.
Each of those below deserve their mention, for one reason or another.
Capita - Aldridge bids farewell
How many people can bid goodbye like Rod Aldridge? “Under my chairmanship, Capita has grown from a start up in 1984 to a FTSE100 company... Shareholders have enjoyed a TSR of 165 times. Our employee numbers have grown from 98 to 26,000.”
It’s not a bad record. So did he have to go? Maybe, it just works better for everyone this way. Rod Aldridge leaves with a stellar record. Capita has its reputation protected and even enhanced. And analysts needn’t fear that the chairman’s leaving signals anything amiss.
Jarvis - constant change
Jarvis reported its return to profit. It’s now a £400m turnover business earning a 2.5% margin, before the inevitable non-recurring items. It even has a market cap (£72m) that’s greater than its borrowings (£22m).
With a new management team in place, you might have hoped it would be given space to get on with things.
But while three years of intensive surgery saved the patient, they didn’t make it beautiful. Reports in the press of Jarvis looking to sell its roads business are understandable. There’s a rail and plant business waiting to emerge from old Jarvis; road markings (and FM?) will have to go sooner or later.
Balfour Beatty - the power of reputation
In its August interims, Balfour Beatty wrote £17m off the value of its US businesses. No matter. Reuters highlighted underlying profits (up 15%). Numis called the company ‘best in the sector’. The shares never missed a beat.
Interserve wrote off £25m, in a unit accounting for just 13% of group profits. Adrian Ringrose claimed the problem was ‘cauterised’. Its shares fell 22%. Balfour Beatty benefits from its reputation for good management and conservative accounting. The bad news from the US is just that: bad news, nothing more. Interserve’s management isn’t given that luxury.
Amec - smart money?
Over the summer, Fidelity has come out of nowhere and bought 27m shares. At £3 or so each, that’s quite a lot of money (and 7% of the company).
Fidelity has a reputation as a (very smart) value investor, happy to buy when others have lost faith. This reminds us that there is a good Amec business behind some of the recent flip-flopping.
Besides, it’s not Fidelity’s first foray into support services. It was a big investor in MacLellan. And now, presumably, holds a fair bit of Interserve paper. You win some, you lose some.
Inspace - no logic
Maybe we just care more about these things than we should, but it seems to us that business strategy should be based on sound logic.
Inspace warned on profits in July, hit by disappointing demand in social housing. Simultaneously it announced the acquisition of Widacre, a social housing business, for £65m, from Wilmott Dixon, where Inspace’s own chairman owns a stake.
The justification? “This brings social housing as a percentage of revenue up to 70%,” Inspace said. In light of the evidence, that may not be a good thing.
And finally - Branding
We think brands are important, even in a B2B market. But recent news makes us wonder.
Mitie announced that ‘MITIE Cleaning’ will henceforth be known as ‘MITIE Cleaning & Support Services’. Laing announced that it will use the John Laing brand. For all its businesses, worldwide. Except for Chiltern Railways. And except for Equion.
And then we remember our own name . Five letters, Latin, vaguely 1980’s. The sector is full of such names: Covion, Dalkia, Ecovert, Eurica, Faceo, Serco, Vinci... It’s all a bit uninspiring.
Leo van der Borgh is a Consultant at Credo.
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