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Mears moves to some emergency-only contracts during coronavirus lockdown

Last updated: 18:19 05 May 2020 AEST, First published: 16:44 05 May 2020 AEST

Mears Group PLC -

Mears Group PLC (LON:MER) said it has moved to deliver only emergency maintenance services for its local authority and housing association clients during the coronavirus lockdown, but kept up full housing management and care activities.

Running emergency services has resulted in operating losses during the lockdown but this will be “modest”, the company said, expecting a small positive free cash flow overall.

Housing maintenance, which normally accounts for around two-thirds of group revenues, has moved to interim arrangements with the majority of clients, with some staff put on the government's furlough scheme, which together has enabled the company to recover its direct labour and local overhead costs. 

Housing management, which provides services to tenants on behalf of public and private sector landlords and which represents around a quarter of normal revenues, has seen no reduction in demand, with its asylum-seeker accommodation contracts seeing increasing numbers entering and few exiting, with conditions during the pandemic leading to some local protests.

Extra-care and supported living activities have obviously continued to provide services to its vulnerable users, with Mears saying it has been successful in ensuring staff have necessary PPE to carry out their work and that customer feedback has been positive.

Development activities, which would normally account for around 5% of group revenue, have been mothballed for now.

Management believes banking facilities of £170mln will provide sufficient liquidity, but have considered it prudent to extend the facility by around £22.6mln.

Having refrained from paying a final dividend for last year due to the coronavirus crisis, the company said it intends to return to paying a progressive payout “once it is confident that activity and working practices have returned to normal and that it would be prudent to do so”.

Shares in the company rose 9% on Tuesday morning to 178.5p, but are still down 42% since the start of the year.

Analysts at Peel Hunt said the update "confirms significant progress in reducing operating and financial risk during Covid-19".

"Positive client engagement (underpinned by the group’s service record) has minimised likely operating losses whilst ensuring positive free cash flow."

On the basis lockdown lasts until the end of July and a phased recovery in August, the broker reduced its 2020 earnings per share forecast by 60% to 12p and reiterated a 'buy' recommendation.

   --Adds share price and broker comment--

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