Carillion: demolition job sees bombed-out shares collapse

A lot of people have been hoping that “Spreadsheet Phil” would spend big on building projects in this week’s Budget – Carillion shareholders perhaps more than most. Shares in the group, one of Britain’s largest construction companies, plunged 60% last week, after “a shock update” on its finances cast doubt on its survival, said Jill Treanor in The Guardian. With debts mounting to £1.6bn following a third profit warning in five months, a breach of banking covenants now looms. Carillion needs to recapitalise fast, and may be forced to take the unpalatable option of asking lenders “to swap their debt for shares”. Nicholas Hyett, an analyst at Hargreaves Lansdown, described the situation as a “horror show”.

It certainly looks that way for shareholders. Having started the year at 240p, shares have fallen to a tenth of that value and some think they may end up close to worthless. UBS has set a target price of just a penny per share. “Perhaps the only question is how long it takes to get there,” said Lex in the Financial Times. “A few months ago, Carillion was a recovery story.” What on earth went wrong? In a nutshell, it has “taken a bath on badly priced building contracts and an overpriced acquisition”. The builder, which generated a third of its £5.2bn revenues last year from the UK Government, also blamed “delays to certain PPP (public-private partnership) disposals”.

A new boss – Wates veteran Andrew Davies – is scheduled to start in April, noted Alistair Osborne in The Times. Maybe he’s hoping “to arrive at a still-standing, recapitalised Carillion” with his share options “at a suitably bombed-out price”. After this week, however, “the risk is that he’s joining a demolition site”.