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Mouchel ripe for takeover as rail and Middle East losses hit hard

Consultant Mouchel has been set up as a takeover target after the firm admitted that its financial performance for the current year will fall below previous expectations.

The firm has been forced to write off around £30M in earnings in the Middle East and has lost out in Network Rail’s re-tendering of its bridge inspection contracts.

The impact of the losses was revealed today in an Interim Management Statement (IMS) covering the period to 31 May 2009.

City analysts immediately said the firm was at risk of being broken up and sold off.

“There is investor frustration with the senior management of Mouchel who are now at risk as much of the disappointment is perceived as self inflicted,” said analyst Numis Securities, citing the firm’s late entry into the Middle East, over optimism on contract wins, and its rising debt.

“In our view the combination of the shareholder list and desire of the existing management team to put it right make the company a potential takeover candidate. The company is a hybrid which may require two buyers but there are attractive positions in engineering consultancy, maintenance and in outsourcing.”

Analysts said they expected the groups’s price to fall further in the coming week. The group’s share price fell 30% on the news.

In its IMS the firm said it remained in a strong position despite the setbacks.

“Since we reported the half year results on 31 March 2009, the Group’s performance has increasingly been affected by the previously reported challenges in rail and in the Middle East. Our management consulting business has also been further affected by a reduction in demand for consulting services generally, as well as by the costs associated with targeting new opportunities and investing in developing our major local authority partnerships, the benefits from which have been slower to materialise than previously anticipated.

“We continue to take measures to ensure that we have the right cost base for the Group going forward. This too has impacted financial performance in the short term but will ensure that we are in a strong position to deliver organic growth in underlying trading. 

“As a result, the Group’s performance for the current year will be below our previous expectations. The position in rail and in the Middle East will also impact next year. However, we anticipate that this will be broadly offset by the cost savings secured this year and by organic growth in the Group’s ongoing businesses, such that performance for the Group as a whole in 2009/10 will be broadly unchanged from the current year.  

“In spite of this, and notwithstanding general economic pressures, demand for the Group’s services in our core markets remains generally good. We have strengthened our bidding capability and have secured some important new wins. We have also benefited from increased activity in a number of our existing commissions. We continue to have a healthy order book and bidding pipeline. Our order book still stands at close to £2bn and we have made good progress in positioning ourselves for work currently being bid.”

Chief executive Richard Cuthbert said the loss of its rail inspection contract would not have a lasting impact: “Rail has never been a major element in Mouchel’s portfolio, but diminishing industry margins and a low win-rate convinced us that working with Network Rail can no longer offer us an attractive or sustainable business proposition. Many of the technical skills needed in rail consultancy are however readily transferable to other, more profitable markets.”

Its Middle East problems stem from non-payment from government-backed clients. As at 31 January 2009, sums due in the Middle East totalled £31.6M of which £23.0M related to contracts in Dubai, with the vast majority being due from the local state-backed development companies.

Cuthbert said the the Middle East continues to “present mixed” fortunes for the Group, with work in Dubai “stalling” but performance and prospects remaining solid in Abu Dhabi and Kuwait. In the UK roads sector, Mouchel, in joint venture with Enterprise plc, has been shortlisted by the Highways Agency to provide managing agent contractor (MAC) services in the North West and South West and in water the prospect of work under the AMP5 programme remains highly positive.

“We remain confident in the capacity of the market to sustain our longer-term growth aspirations and to present us with the opportunities to drive out further efficiencies in the way public services are provided to citizens of the UK,” said Cuthbert.

Readers' comments (5)

  • Was the exact same not been said with regards to Waterman, WYG as well about 6 / 12 months ago and nothing has materialised as yet?
    It is one thing saying Mouchel are 'ripe for takeover' and something actually happening in the current market conditions.
    In addition, the differential between the high price of two years ago and the current market price is only the same as Atkins, so are they 'ripe for takeover too?!'

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  • This headline scared the hell out of me as I have friends who work for Mouchel, and used to work for them too. However on closer inspection, the results are not as bad as the title suggest, and reasons are entirely out of Mouchel's hands. However, Mouchel has been too ambitious, trying to grow big very fast. Just over 5 years ago they teamed with Parkman to form Mouchel Parkman and embarked on an ambitious programme to be the top consultant in a few years. Now they are Mouchel again, and if they are broken up will they become Mouchel and Parkman again!

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  • For full disclosure, I am a Mouchel employee and shareholder.
    As usual, the stockmarket seems to be reacting to headlines rather than substance. Yes the news from Rail (where I work) is bad, as is the middle east. But there are very few companies with a secured forward order book around 1.9 Billion pounds and a bid pipleline of 1.7 Billion (all in the detail of the statement).
    Mouchel could stop bidding now, cutting costs dramatically and improving profitability equally, and still continue for three years at our peak turnover of 656 Million pa (yes I know that some of the work will happen after 3 years but you get the point). Unfortunately the market over reacts to short term news and ignores underlying long term facts.
    As soon as someone starts sniffing around, the price will over react the other way, so please keep the rumours going and help drive the share price up.

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  • "Rail has never been a major element in Mouchel’s portfolio, but diminishing industry margins and a low win-rate convinced us that working with Network Rail can no longer offer us an attractive or sustainable business proposition." Chief executive Richard Cuthbert
    If the rail industry has diminishing margins and a low win-rate who decided to bid for a unattractive, unsustainable business?
    If rail is not a major element of Mouchel's portfolio why is it making such big news?
    Would Mouchel be 'convinced' if they had won some of the rail contracts?
    Are Network Rail be keen to work with Mouchel following Richards Cuthbert's comments?
    How attractive or sustainable do business propositions need to be? The share price is heading the wrong way!

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  • i am not surprised as Mouchel thought UAE was an easy target to make huge profits. instead, they have been cut short and they are not fulfilling their financial obligations with their local partners. arrogance doesn't last long in the Middle East and i sincerely hope that they learned their lessons so they can pay their debts...many of their partners have been left with oustanding payments from Mouchel that, i am sure, will never be resolved. furtermore, Mouchel managemnent in UAE doesn't have the decency toeven face their partners and come up with a rational is very sad and very unprofessional...

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