Shares drop as double blow hits Redhall

At the company's AGM yesterday, executive chairman David Jackson told shareholders: "Trading in the first quarter of the current financial year has been slower than anticipated, in part due to the weather affecting progress on several major contracts."

Analysts at house broker Altium said the severe weather in December had affected parts of the process and energy businesses.

This included work on oil terminals and the Vivergo contract, where work was halted for safety reasons.

Wakefield-based Redhall said trading for the balance of year, which ends on September 30, should produce a full year result in line with the board's expectations. It reiterated that the year's trading will be weighted in favour of the second half.

But analysts were sceptical and the group's shares closed down 15.50p at 145.50p.

Brewin Dolphin described the news as "disappointing" and cuts its rating on the company to "hold" from "add", reducing its target price from 182p to 156p.

"We now expect first-half results in both energy and process will be below previous expectations ... and move from add to hold pending further clarity on the current bid pipeline being converted into orders over the next few months," they said.

The group's shares were also hit by the news that chief executive Simon Foster has resigned "for family reasons".

He will leave the group at the end of March.

Analysts at Brewin said Mr Foster was leaving to spend more time with his family, who moved to Devon last year. Mr Foster had been living away from his family during the week.

But Brewin welcomed the news that Mr Jackson will take on Mr Foster's executive responsibilities until a replacement is found.

Mr Jackson said: "I would like to thank Simon for his considerable contribution in the establishment of the Redhall Group and wish him well for the future."

He said that the contract pipeline remains strong, particularly in the energy and defence sectors and there are signs that the process sector is improving for the second half.

Analysts at Brewin said the defence division continues to trade satisfactorily and the outlook in the second half remains more positive with a number of major contracts in the pipeline.

But they said in a note: "Redhall will have a lot to do in the second half to hit our 2011 pre-tax profit forecasts of 7.3m. We are therefore reducing our current year pre-tax profit forecast by 11 per cent to 6.5m."

Analysts at house broker Altium said: "The bid pipeline remains strong and the likely start date of some large near-term opportunities in defence and oil & gas has come forward to March/April, offering scope for a full second half contribution should Redhall secure this work."

They added that it was disappointing that the group's "well-regarded" chief executive Simon Foster was resigning for family reasons.

"Given potentially irrecoverable weather-related costs and some deferrals, we feel it is prudent to trim our current year pre-tax profit forecasts back to 7.0m from 7.3m," they said.

"Management are very confident of winning four opportunities expected to be awarded in the near term and this is reflected in our current year numbers."

Mr Jackson said the group remains on the look out for acquisitions.

"We were delighted to announce recently our new 25m bank facilities with HSBC which gives us access to committed funds until 2015," he said. "This provides us with additional scope to support working capital needs and any future acquisitions."

Redhall has secured new debt facilities of 25m, with 20m of facilities committed until 2015 and a 5m overdraft.

The group is eyeing up "half a dozen" acquisition targets and aims to do a deal within the next six months.

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REDHALL'S new 20m facility replaces the group's previous 14m facility which was due to expire in April 2012.

The money will allow the company to set out on the acquisition trail.

Redhall, which lost out in the bid for Mount Engineering in October, is focusing its sights on high margin takeover targets that will complement its existing operations.

Chairman David Jackson said that with 9m cash in hand and 25m of banking facilities, the group can bankroll an acquisition of up to 20m.

A bigger deal would be funded by raising money from investors.

Ros Snowdon City Editor

top project: Redhall has been a key player in the Astute submarine project. The group said that the contract pipeline is strong.picture: by kind permission of BAE Systems Submarines