Outsourcers’ woes continue as construction giant Kier Group braces for potential drop from FTSE 250

The beleaguered UK outsourcing industry could suffer another blow in coming days with construction giant Kier Group looking set to drop from the FTSE 250 index.

Kier’s stock was down another eight per cent this morning as the spectre of Wednesday’s round of FTSE index relegations and promotions loomed.

CityAM understands Kier is one of several companies being lined up to drop from the FTSE 250 to the less prestigious FTSE Small Cap index.

Contractors Interserve were also under the cosh today, with shares down 6.5 per cent as construction outsourcers continued feeling the aftershocks of Kier’s announcement on Friday of a plan to raise £264m to pay off debts by selling discounted shares.

David Madden, analyst at CMC Markets said the drops were "a classic case of 'when it rains, it pours', with weakness in one company hitting the entire sector". 

Investor confidence in outsourcers has plummeted in recent months, after January’s demise of construction group Carillion was followed by several other high-profile failures in the prisons, medical and rail sectors.

Companies have come under sustained pressure to balance the books after the knock-on effects of Carillion's insolvency were exacerbated by its inability to manage debt and pay suppliers on time.

City Index analyst Ken Odeluga, said the market interest in Kier was so high because it was “the closest outsourcer” to Carillion in terms of business model.

It appears construction groups have borne the brunt of investor’s worries after Kier’s rights issue, as companies specialising in non-construction contracts have been shielded from the worst of the share sell-offs, with health and transport service provider Serco’s price down only one per cent.

Security and cleaning services provider Mitie even reported gains this morning, perhaps fuelled by its announcement it would switch part of its fleet of vans to electric vehicles in the next two years.

The notable exception, however, was Capita, provider of tech and IT-related services, whose shares dropped around four per cent today.

City A.M. understands that non-construction outsourcers feel they have been hit harder by sustained uncertainty around the terms of Brexit than the Carillion crisis.

But this has not stopped the government encouraging companies to write so-called living wills – which Capita, Serco and Sopra Steria have already agreed to do – to ensure contingency plans are in place incase they suffer the same fate as Carillion.