May Gurney slumps after profit warning as chief executive steps down

RELATED QUOTES

SymbolPriceChange
IVKA.F6.051+0.158
FRNWF0.0990.000

May Gurney’s shares slumped 41pc after the group issued a profit warning and announced that its chief executive was to leave.

Recyclying and road repair company May Gurney’s shares slumped 41pc after the group issued a profit warning and announced that its chief executive was to leave.

The support services group set out a series of problems that would lead it to “significantly under-perform its original expectations” for the year.

May Gurney makes 60pc of its revenues from the public sector, and its troubles raised fears it could be the next support services group to fall victim to government austerity.

Spending cuts contributed, at least in part, to the fall into administration of Mouchel last month and of Rok (LSE: ROK.L - news) and Connaught (LSE: CNT.L - news) in 2010.

Analyst Jamie Constable at Singer Capital Markets said: “In the light of what happened to Mouchel, you have to be worried.”

May Gurney’s finance director, Mark Hazlewood, denied the connection, arguing: “It’s an obvious question for people to raise, given the sector we are in, but we are very clearly differentiating ourselves from those circumstances.

“Critically, unlike some of the other businesses who had systematic issues in the way they were running the business, we have two or three very specific issues on limited numbers of contracts. ”

He said May Gurney had a strong order book, good banking relationships and a strong cash position. He stressed much of its work was servicing regulated industries and “essential” local authority contracts such as emptying dustbins, areas that were more resilient to cost cuts.

Among the issues affecting May Gurney was a £10m hit due to winding down a division that had served the Building Schools for the Future (Other OTC: FRNWF.PK - news) programme, which was axed as part of education budget cuts in 2010.

The company said its Scottish utilities business would suffer as Scotia Gas Networks reduced outsourcing, under pressure from energy regulator Ofgem to reduce costs that are passed on to household bills.

May Gurney also cited “serious operational issues” that meant two recent contracts in its MaGos recycling division remained loss-making. These represent about 3pc of historic revenues and had seven to 14 years left to run.

John Lawson at Investec (Frankfurt: A0J32R - news) said he was likely to take at least 15pc off pre-tax profit estimates for 2013.

The shares fell 91 to 130p.