There was nothing dreamy about first half profits from Spire Healthcare (SPI). It’s not just that the cash-strapped NHS made a reduced use of its services, private patients were also less in evidence. This at a time when an ageing population should be requiring more treatment.
The trouble is that Spire has heavy fixed costs, so any fall in revenue drops through to the bottom line with a vengeance. Revenue slipped just 1.1% yet pre-tax profits dropped by more than half, from £12.1 million to £5.1 million. Current trading sees flat group revenue, which is not great but actually a bit of an improvement on the first half.
Chief executive Justin Ash admits Spire is facing headwinds, so full-year profits will be down on 2017. He thinks that the current situation “appears to be translating into significant business challenges for many sector participants, which in turn may lead to opportunities for Spire.”
I admire his optimism, and that of the board in maintaining the interim dividend at 1.3p. However, this is the same board that tried to put the best gloss on its profit warning in early August so investors should be very cautious.
The shares, floated at 210p four years ago, slumped 20p to 149p on the results before coming off the bottom on hopes that 29.9% shareholder Medicare will make an offer to put them out of their misery. I prefer to stay well clear.
Kingfisher and Stagecoach
DIY retailer Kingfisher (KGF) and transport operator Stagecoach (SGC) are in very different fields but they have one thing in common: there is always some part of the business doing badly.
Kingfisher saw profits drop 30% as rising costs and a squeeze on cash for home improvements took their toll. B&Q sales slipped but the biggest headache remains the French arm, where chief executive Veronique Laury admits there is no quick fix.
She is halfway through a transformation programme for the group but there is precious little sign of improvement yet.
Stagecoach lost ground in London after the loss of bus contracts while revenue growth slowed on the West Coast and East Midlands line but at least it has got rid of the lossmaking East Coast franchise.
Of the two, Stagecoach looks by far the better investment but I still worry what will go wrong next. I’m not the least tempted to buy into either company.
Kier – Reasons for Optimism
That’s enough misery for one week so let’s look at a company that I believe will do better over the rest of the year: construction group Kier (KIE). Those who feared that Kier would follow rival Carillion down the path to self-destruction have been proved to be overly pessimistic. Instead, Kier has picked up more work from Carillion’s demise.
Revenue was up 5% and pretax profits 9% in the year to 30 June, with a small increase in the dividend as Kier rebuilds cover to a sensible two times. All divisions are said to be performing well, the construction and services order book stands at a record £10.2 billion and debt is being reduced.
The shares had slipped erratically from £11.80 a year ago until finding a floor at 900p. They still haven’t recovered fully but I believe they are on an upward trend.
Upcoming Conferences
If any readers of this column attend the London Investor Show on 19 October or the Manchester Investor Show on 9 November please come up and talk to me. I will be giving a talk on investment prospects after a 10-year bull run for shares and sitting on two panels but there will be plenty of time to chat in between.
Rodney Hobson is a long-term investor commenting on his own portfolio; his comments are for informational purposes only and should not be construed as investment advice, nor are they the opinions of Morningstar.
