2017 has been a tough year for the providers of social housing repairs and in-home care.
Companies: Mears Group Plc
Mears Group (LON: MER) shares have taken a hit today after Management issued a trading update
which flags further softening of revenues.
The Group's Housing division, who provide services such as maintenance repairs to over one million social housing homes, continues to be impacted by the follow-on effects of Grenfell Tower, which it highlighted in its Interims in August.
Social Housing landlords have been deferring work orders as they prioritise making their properties safe and compliant.
The Group's Care division, which provides in-home support for the elderly and disabled "remains in line with our expectations and we remain confident that Care will deliver a profit in the second half and for the full year overall."
Management has had to make some changes in the Group as a result of Grenfell, saying:
"The challenges encountered in 2017 have led to the Group taking a more detailed review of its central support structures so as to ensure that its support functions deliver best value. This is particularly relevant given the evolution towards a broader service offering with a changing support requirement. Mears has commenced a right-sizing across a range of support functions which will span the year end."
Adding salt to the wound, the Group has had to provide for an exceptional item in its 2017 results which will be reported next year, thanks to a number of contractual performance guarantees being called on. These relate to an entity of its now disposed of Mechanical and Electrical Division operating in the UAE and are expected to be up to £16.5m.
Management said they do, however, "realistically expect" the funds to be recovered in due course.
Group CEO David Miles commented:
"I do not wish to gloss over our 2017 performance and I understand the importance of delivering against our financial targets in the short term. Whilst some of the short-term challenges in Housing could not have been anticipated, it is frustrating a number of other opportunities that could have helped mitigate these challenges did not develop quickly enough."
As a result of today's update, corporate broker Liberum said in its note today:
"We reduce our 2017 and 2018 FD EPS by 7% and 4%, although the 2018 change is our view not management’s. Housing EBIT reduced 7% and 3% in FY 2017 and 18. But no change at Care. FY 2017 net debt estimate increased from £0m to £14m or 0.3x EBITDA. At Housing, further softening of discretionary and non-discretionary revenues due to Grenfell... TP reduced to 480p from 525p."