Australian analysts warn Multiplex to scale back in UK

Analysts in Australia this week warned that Multiplex would have to scale back work in the UK after the firm admitted it had racked up a £45m loss on Wembley stadium.

One analyst said it “should never have taken Wembley on” because the project was too complex for the Australian contractor and developer. He said it ought to have stuck to shopping centre and office projects, which it knew best.

Shares in the company fell 25% on Tuesday in response to the news. Australian analysts have downgraded their earnings expectations for next year, from A$270m (£112m) to A$215m (£89m).

Another analyst said that Multiplex had failed to appreciate the strength of UK subcontractors in the market, basing its assessment on experience in Australia where they are significantly weaker. He said: “Multiplex has failed to gain the efficiencies it is used to getting on site in Australia. Broadly, it has gone into the UK and been overly aggressive on projects.”

Deutsche Bank analyst Ian Randall said: “Multiplex indicates that it will further de-risk its construction and development operations by shying away from major high-risk third party construction jobs like Wembley, and paring back its UK development exposure. This may mean selling part or whole of its stakes in some development assets. We remain cautious about over-runs at White City in west London.”

The board of Multiplex this week showed that it had already heeded the warning against further and misguided expansion in the UK. Noel Henderson, head of the UK business, stepped down from the board. He will remain at the company and retain a level of involvement at Wembley but makes way for the appointment of an independent director, who Multiplex said would “preferably have UK experience”. John Roberts also stepped down as executive chairman, although he will remain as a director on the board.

A source close to Multiplex said: “There has been pressure on management to have a more independent board. The changes show it is aware of corporate governance issues by freeing up a space for an independent director.”

Paul Snushall, an analyst at Merrill Lynch’s Sydney office, said: “We have lost our enthusiasm for the stock and have pulled back our opinion from buy to neutral.” But he added that Multiplex was not in dire straits: “It is a long way from being insolvent, with 46 of its 51 construction projects making money and one breaking even.”

Analysts in Australia are less concerned with the £45m loss on Wembley, £21m of which will be paid by the Roberts family, than that Multiplex has downgraded its earnings for 2006.

However, Multiplex is faced with further financial risks at Wembley. The company said this week that the stadium would not be finally ready in November as originally stated, but in March. This raises the possibility that it will be liable to pay liquidated damages of up to £14m.

Multiplex shares recovered slightly on Wednesday as Building went to press, rising 5%.