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Analyst forecasts takeovers for consultancies as shares fall

Consultants WSP and White Young Green (WYG) were identified as prime takeover targets this week should private sector investment continue to fall.

Modelling by investment bank KBC Peel Hunt found that the performance of consultants will be hampered by the economic downturn, and profits warnings should be expected, which will again send share prices tumbling.

Report author Geoff Allum has reduced the profit forecasts for all consultants listed on the UK stock exchange, reducing forecasts by an average of 11%, but two consultants will fall further: WYG by 18% and WSP by 16%.

Allum said consultants will have to move quickly as profits fall faster than cashflow. "When costs are cut to 90% of the fall in sales, our model shows an average profi t decline of 18%," said Allum.

However, he predicts that consultancies will be one of the first to recover when the depth of the recession is known. "With values for the UK’s highly respected consultancies now standing at one-third of their level a year ago, they will be highly attractive investments as soon as the outlook becomes clearer," added Allum.

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