Relisting strategy likely to weigh the market down

by Kathy Watson



Contractors seeking stock market relisting in the services sector in order to escape the financial world's low ratings may simply be bringing down the value in the sector they are entering, according to a report to the Construction Industry Board.

Management consultant AT Kearney interviewed analysts working for five of the major financial organisations to gain a better understanding of the views held by the City. In addition to the negative feedback on the relisting strategy, it discovered that Amec, Kier, Morrison, Mowlem and Bovis were regarded as good examples of contractors that have reduced risk and are leading the way to better shareholder value. Analysts thought companies needed to consolidate, reduce risk exposure by partnering and improve their purchasing systems and activities. But some analysts said there was evidence that partnering damaged contractors' margins.

They also found that materials companies were regarded as a better investment bet because of better industry dynamics, less risk and better planned strategies and less uncertainty. They said they favoured heavy materials over light ones.

Kearney urged contractors to adopt the recommendations of the Turnbull Committee on internal controls and risk management that should reduce risk for investors. They should also provide more detailed information on strategy and operations, clarity on where profits and losses are being made and project information especially from a risk-reward perspective.

They were further urged to develop and implement a profitable growth strategy, increase emphasis on supply chain management and strategic purchasing and continue the shift towards the Private Finance Initiative and facilities management.

They concluded that most analysts are not enthusiastic about construction as a sector for strategic investment, claiming it is "too small, opaque and unpredictable" with weak management, fierce competition and low and unpredictable margins and risks.

The CIB is now considering expanding its research into how the financial sector views unlisted companies, in order to give them pointers to improving their image.