May Gurney Integrated Services Plc (MAYG) fell the most since it sold shares in 2006 after the recycling services and road repair provider said it will “significantly underperform” expectations and the CEO will step down.
May Gurney has experienced “serious operational issues” in two long-term waste and recycling contracts and in plans to exit the facility services business, the Norwich, England-based company said today in a statement. Chief Executive Officer Philip Fellowes-Prynne is stepping down immediately.
May Gurney said it will take a charge of about 10 million pounds this year to discontinue facilities work. “The group will significantly underperform its original expectations for the current year,” it said.
Peel Hunt, the company’s house broker, reduced its estimate for fiscal-year 2013 adjusted pretax profit by 17 percent to 25 million pounds, and for 2014 to 26 million pounds from 32 million pounds. Peel Hunt analyst Andrew Nussey cut his recommendation to hold from buy, while N+1 Brewin changed its rating to sell from add.
Problem areas have been “ring-fenced” and the facilities unit’s charge is “conservative,” Chairman Margaret Ford said in a telephone interview. May Gurney doesn’t anticipate that other executive departures will follow Fellowes-Prynne’s exit, she said.
Willie MacDiarmid, a former Scottish Power manager who serves as a May Gurney non-executive director, will act as CEO until a permanent chief is named, the company said. May Gurney also faces declining revenue in its Scottish utilities business because Scotia Gas Networks Ltd. intends to reduce outsourcing, the company said.
Targeted margins for waste contracts that involve sorting recyclables at the curbside haven’t been met, and May Gurney is “taking stringent actions” to improve profitability, it said. The contracts have represented 3 percent of annual revenue and are spread over seven to 14 years.
“The underlying performance of the rest of the business is sound, in line with previous announcements, and we are continuing to actively bid for new business,” May Gurney said.
The company, founded in 1926, had sales of 695.3 million pounds in the year ended March 31 and has been profitable every year since going public. May Gurney maintains more than 37,000 kilometers (23,000 miles) of roads and more than half a million streetlights and signs, according to its website. The company also does repair work on U.K. railroads and maintains waterways.
The stock remains an “interesting opportunity at lower levels given the group’s positioning in an attractive and consolidating sector,” Peel Hunt’s Nussey said.