City warns investors may lose patience with Rok as profit halves

City analysts have warned that investor patience is running out with social housing and construction firm Rok following its profit warning last week.

Their words of caution follow the company’s half-year results this morning, which showed turnover had fallen 15% to £308m and that pre-tax profit before exceptional items had halved to £3m. Its share price has fallen by 92% to 20p in the three years since the credit crunch.

After exceptional items, which included redundancy costs and writedowns on acquisitions, Rok made a pre-tax loss of £3.8m in the six months ended 30 June 2010.

Last week’s profit warning was put down to accounting problems within its plumbing, heating and electrical business. As a result finance director Ashley Martin was suspended and is understood to be unlikely to return to work. It follows a profit warning on 30 April that the firm put down to bad weather and an earlier warning in November 2008, which blamed clients’ cashflow problems.

This morning one analyst said: “Inevitably investors get sick and tired of these warnings and want to see management start delivering now. If things don’t improve there will be some pretty tough questions asked of the management team that remains.”

Numis analyst Howard Seymour said Rok must show it has “got to grips with issues in all major divisions which have blighted profit and share price performance over the past few years.”

He added: “The onus on recovery is management-driven, and outweighs macro concerns about the UK construction outlook, and it is for management to provide the actions that are essential for this value to emerge.”

In the half-year net debt fell from £57m to £48m and the chairman Stephen Pettit emphasised the positives. He said: “Rok has a diversified range of revenue streams, a growing customer base, a strong order book with a very high level of visibility of work well into next year, significantly improved cash generation, and excellent customer satisfaction.”

Results by division

Construction

Turnover £116m (2009: £160m)
Operating profit £600,000 (£500,000)
“Rok’s Construction business (…) continued to target profit over volume through careful customer and project selection. This deliberate tactic has been employed since late November 2008 to minimise risk during the worst phase of the recession. A tight focus on costs has continued and the order book is good.”

Social housing

Turnover £84.5m (£98.4m)
Operating profit £3.6m (£5m)
“Trading in the social housing business was not affected by the change in government and subsequent spending cuts although a slight slowdown in the period between tender and award of contract and a greater emphasis on new build housing rather than planned repairs has been noticeable.”

Maintenance

Turnover £116.7m (£112.6m)
Operating profit £2.3m (£5.4m)
“The PHE business is not now expected to make any contribution to full year profits and the decision to integrate the PHE operations into our build and maintenance offices will result in charges for operational restructuring and redundancies.”