Carillion's Collapse Could Affect Companies From Madrid to Texas
(Bloomberg) -- “The good thing about a car crash that takes seven months is that everyone has had time to put on their seat belts,” London broker Liberum Capital wrote in a note Monday, referring to the collapse of U.K. construction and services company Carillion Plc.
But while the industry may have had ample time to prepare for the firm’s downfall, shares of some joint venture partners fell Monday as they quantified the financial impact. Carillion’s rivals, meanwhile, may benefit from increased contract opportunities, according to analysts.
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- Speedy Hire Plc: Shares in the construction equipment hire firm plunged as much as 12% Monday, the most in more than two years. It announced a contract renewal with Carillion in February worth up to 45 million pounds ($62 million) over three years.
- Balfour Beatty Plc: Construction peer Balfour is in a joint venture with Carillion on three road projects. It expects a cash impact of 35 million to 45 million pounds in 2018, according to a statement Monday. The stock fell as much as 3.4 percent.
- Galliford Try Plc: Like Balfour, Galliford partnered with Carillion on the Aberdeen Western Peripheral road project. The additional cash contribution outstanding from Carillion is estimated to be 60 million to 80 million pounds, Galliford said Monday. The stock fell about 6.3 percent.
- Serco Group Plc: The British outsourcer is one of a number of firms set to benefit from Carillion’s failure, according to Liberum’s Joe Brent. Serco agreed to acquire a “major part” of Carillion’s health facilities in December and there may now be an opportunity for it to acquire more assets, Brent said in a note to clients. Serco’s stock rose as much as 6 percent Monday.
- Costain Group Plc: The engineeering and construction firm, along with Balfour, could see more electrification and power lines contracts with Network Rail, previously a Carillion customer, Liberum said. Shares gained as much as 1.8 percent.
- Babcock International Group Plc: The company may win new defense contracts after Carillion’s collapse, according to Liberum. Shares rose 0.7 percent.
- Kier Group Plc: The construction and services firm operates rail and highway joint ventures involving Carillion. It does not expect an adverse financial impact on the group arising from these JVs, according to a statement Monday, and Peel Hunt included it among potential beneficiaries from Carillion’s woes. Shares advanced as much as 6 percent.
- Interserve Plc/Mitie Plc: The support services firms are also likely to form a key part of client contingency/emergency planning following Carillion’s collapse, thus increasing their market shares, according to broker Peel Hunt. Interserve’s stock rose as much as 2 percent while Mitie rose 1.6 percent.
- Still, Stifel noted that Carillion’s collapse “raises the potential for either a hiatus on new larger tenders or higher standards of due diligence which could impact other indebted companies, such as Interserve.”
Other Stocks to Watch
- Eiffage SA: CEK, the JV between Carillion, Eiffage and Kier, was awarded contracts for the 190 km high speed HS2 rail line worth 1.4 billion pounds in July. A U.K. government spokesman said Monday that the HS2 project is not at risk.
- KBR Inc: The Aspire Defence Capital Works JV between Houston, Texas-based KBR and Carillion was awarded a contract by the U.K. Ministry of Defence worth over 1.1 billion pounds in November 2016 for a series of unit moves and the resettlement of troops from Germany by 2019. The company didn’t immediately respond to a request for comment.
- Ferrovial SA: The Madrid-based firm’s subsidiary Amey has a joint venture with Carillion to maintain U.K. Ministry of Defence properties. Amey is “fully prepared” to continue its contractual obligations without adverse effect on employees or its supply chain, according to a statement Monday.
- Bilby Plc: The Sidcup, Southeast England-based maintenance firm is subcontracted by CarillionAmey. Bilby is in discussions with Amey, but at the moment it is “business as usual,” finance director David Ellingham said by phone.
- BT Group Plc: Carillion’s joint venture with installations firm Telent signed a 3-year extension to its agreement with BT’s Openreach for the maintenance, extension and repair of the telephone and data networks in England in February last year. The contract was worth up to 1.5 billion pounds. Newspaper City AM reported in July that responsibility to deliver the services will fall on Telent if Carillion should fail.
- Mears Group Plc: Property management firm Mears has previously expressed interest in U.K. defense estate contracts awarded to companies including Carillion, Liberum noted, although it expects Ferrovial’s Amey to take the contracts.
- Severfield Plc: The maker of steel structures listed Carillion among customers that it has “continued to work closely with,” in June. A spokesman did not immediately respond to a request for comment Monday.
- HICL Infrastructure Company Limited: Carillion provided facilities management services to ten of the public-private partnerships in which HICL is invested, representing about 14% of its portfolio value. The firm said today that it has activated a contingency plan for Carillion’s collapse. Analysts at Stifel do not expect any material impact on valuation at this stage.
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