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It was difficult to see much investor confidence in Carillion’s (LSE:CLLN) trading statement released this morning. Its share price continued the downward trend that has typified its course over the past twelve months. Carillion shares fell 12.00 pence to 270.00 in early trading as investors may have difficulty accepting positive full-year projections in light of actual first half performance. The share price is down 30% from one year ago. Where the share price goes from here is really dependent on whether investors believe the company’s position that the present performance is not a strong indicator of prospective performance.
The Present Performance
Although the company cited several positives for the first half results, nonetheless, with the overall slowdown in construction in the UK, the Euro crisis, and slower response times in negotiations in all markets, Carillion anticipates revenues to be below expectations. However, the company is also expecting an increase in operating margins as a result of scaling down UK operations to stay in step with shrinking demand.
The Prospective Performance
CEO Richard Howson indicated in the report that the company’s order book is holding at about £18 billion and that the pipeline of potential projects is at £35 billion. The company expects that underlying profit and earning are “on track to meet full-year expectations.” Carillion’s second half hopes are pinned largely on the expectations of commencing several Middle Eastern projects during the period. Still, these startups could be victims of continued reluctance to begin major projects during current economic and political conditions. Carillion has several Middle Eastern bids that have been stuck in limbo for as long as 15 months.
Perspectives
In an interview with Reuters, Mr. Howson said, “The uncertainty this year is probably a result of the Euro crisis, certainly in the UK and a little bit in the Middle East. It’s slowing things down in terms of decision-making by customers, governments in releasing new contracts to bid and making decisions on contracts which we have bid.” He also said that “There’s plenty of opportunity. Decisions are not being made as quickly as they usually are.”
An analyst with Investec summarized the situation saying, “There remains a lot to do in terms of convincing the market as to the longer-term growth prospects of the business, but the balance sheet and broad geographic spread do provide some reassurance.”
Company Spotlight
Carillion is a multifaceted construction services company with major operations in the UK, Canada, and the Middle East. In addition to constructing prestigious and unique buildings and major infrastructure projects, Carillon provides facility and property management, infrastructure and energy services, including maintenance of some British military bases and railways.
