Shares have tumbled at the firm but the market has since calmed
Carillion has been the contractor to watch over the last week, in the wake of last week鈥檚 shock announcement it was putting 4,500 workers on notice because of the government鈥檚 reversal over its feed-in tariff policy.
Shares in the 拢5bn turnover firm fell as much as 6% on the news, which featured heavily in the national press after www.building.co.uk broke the story on Wednesday, as shareholders digested what it meant.
The news is particularly sensitive for Carillion having paid 拢300m just six months ago for the firm, Eaga, that became its energy services division. Putting all of the staff on notice of redundancy less than six months later doesn鈥檛 leave investors lining up.
The FITs work had been expected to generate 拢200m of contracting revenue, and 拢50m of maintenance revenue, from Carillion鈥檚 first solar power installation scheme. Only a fraction of that figure will materialise.
As one analyst said, if significant lay-offs and write-downs of value do result from this, it has the potential to call into question the soundness of Carillion鈥檚 entire acquisition strategy. After all, the decision to cut the FITs rate was hardly unexpected.
However the market has since calmed itself - the share price didn鈥檛 even fall to the level of the previous week鈥檚 low, before recovering to close at its pre-redundancy level. Shares then surged further after Carillion issued a trading update on Wednesday, despite admitting it has put an extra 拢20m aside to cover restructuring in the division.
After all, Carillion has 50,000 staff, and can say that the work it had been hoping to get from the solar PV sector was not key to the future of the business.
Carillion鈥檚 view is that the long-term reason it bought Eaga - to provide energy services - is still valid. Andy Brown, analyst at Panmure Gordon, said: 鈥淚t gives investors a reason to sit on their hands and not buy stock. But it doesn鈥檛 derail what Carillion is about, or the whole Eaga purchase.鈥�
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