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Sureserve Group

Full-year results give confidence

Update | General Industrials | 24 Jan 2019

FY18 was a year of transition for Sureserve, as it divested its Contracts and Property maintenance operations to focus on Compliance and Energy support services. The prospective P/E of 6.7x warrants investor attention. The investment thesis is that the group will continue to benefit from being more focused, its remaining divisions have strong regulatory drivers underpinning revenue growth, and there remains potential to improve margins and scope for growth through consolidating a fragmented industry. The outlook statement references a strong order book and a strong start to FY19, performing ahead of management expectations.

Sureserve Group

Promised disposals achieved

Flash note | General Industrials | 21 Aug 2018

In its interims on 20 June Lakehouse indicated it had reached heads of terms to sell its property services and construction operations. The company announced on 17 August that the sale is now completed. The business has been divested for a potential consideration of up to GBP 1.5m in cash. The final outcome depends on the performance of the business between the date of completion and 30 September 2021. This uncertainty is normal in the industry as there are ongoing projects and final accounts to settle on completed works. Our forecasts are unchanged as the divestment is in line with our assumptions, although the financial outcome, while potentially material, is uncertain. The provision for losses in the disposed operations, taken at the interims, of GBP 11.8m is deemed adequate by the company at this stage.

Sureserve Group

Good potential, turnaround well advanced

Initiation | General Industrials | 02 Aug 2018

Growing corporate and government awareness around safety and energy efficiency create an attractive backdrop to Lakehouse’s compliance and energy services business, where strong regulatory drivers have the potential to deliver substantial medium-term EBITA growth. The management team appointed in July 2016 to reverse the decline in performance is taking bold decisions. Property services and construction, which have historically been a drag on the group’s performance, are now to be divested. Heads of terms have been agreed and were announced with the interim results on 26 June, but execution risks in completing the divestment remain. We believe this will result in a better business exposed to growth drivers with a lower-risk profile, which will gradually be reflected in the earnings and valuation multiples expanding.

Sureserve Group

Creating a platform for earnings growth

QuickView | General Industrials | 31 Jan 2018

The key signals from Lakehouse's 2017 results are that the mainstream, core operations are back on track and are ready to improve further. The group has undergone restructuring, which had the effect of reducing revenue in 2017 at the group level, to improve the quality of its earnings. That process included downsizing Property Services, the sale of Orchard Energy (non-core) and increasing its presence in energy services and gas compliance. During the year to September 2017, Lakehouse won orders for £580m of new work (equal to 2x 2017 revenue). It is on frameworks with a value of £1.9bn, £0.3bn more than the previous year. The order book at end FY17 was up 19% at £631m. The business is well positioned and, with net debt at a “norm” run rate of £11m at y/e, has a robust balance sheet.

Sureserve Group

Business moving forward once again

QuickView | Industrial Support Services | 30 Jun 2017

Lakehouse's recent report on the six months to March 2017 shows the business starting to improve, following a review of strategy and operations that commenced in mid-2016. Three of the four divisions showed a better underlying revenue and EBITA performance versus last year. The troubled Property Services operation had much reduced revenue, as it completed existing work programmes and started to rebuild. There appears to be a good level of demand for all of the company's services, as evidenced by the 7% increase in the order book to £580m. Central costs have been reduced. Net debt stood at £25m at end March 2017, 1.1x 2016 EBITDA. The mid-term prospects are positive, in our view, despite the negative reaction of the share price following the interims. Consensus numbers are unaltered for the year to September 2017.