Connaught takes big hit to shares

The group said following this week's emergency Budget it has identified 31 contracts where some capital spending has been deferred.

Connaught, which has a number of social housing maintenance contracts across Yorkshire, said this would hit revenues by 80m and earnings before interest, tax and amortisation (EBITA) by 13m this year.

The group added that if this were to continue, it expected revenues to fall by 120m in 2011, with a 16m underlying earnings impact.

It also expects a one-off impact to its cash conversion rate, reducing to around 40 per cent this year.

The profits warning drove shares down by 105.2p to 215p, falling 32.9 per cent to their lowest level since October 2006. More than 100m was wiped from Connaught's market value.

The group is working on schemes across the region including revamping council housing in Hull and North Yorkshire, as well as a 28m contract to repair and maintain 12,000 Yorkshire homes, won last year from housing association Yorkshire Housing.

It declined to specify which contracts have been affected.

Connaught insisted its medium-term outlook remained strong.

It is cutting costs, which it hopes will save at least 25m annually by 2012.

"We have a record bid pipeline of 5.3bn reflecting the trend towards larger, longer-term contracts as our customers seek to address their budgetary restrictions," said the group.

"Connaught is ideally placed to meet the emerging requirements of this market."

Analyst Andrew Nussey at KBC Peel Hunt said it expected to reduce its 2010 pre-tax profit forecast for the company to 40m pounds from 55m.

"Given that this has occurred suddenly, there has been no opportunity to reduce cost and the full gross margin impact (we estimate about 14m) will fall to the bottom line," he said.

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