Last updated: March 30, 2010 5:13 pm

End of the road for Mouchel in Middle East

 
Traffic on Sheikh Zayed Road in Dubai

Mouchel, which consults on projects such as roadbuilding, had already pulled out of Dubai

Mouchel will offload its operations in the Middle East after the collapse of the Dubai property market forced the maintenance company to write off £15m in unpaid fees.

The group, which withdrew from the troubled emirate at the end of 2009, had focused its energies on the more resilient markets of Abu Dhabi, Kuwait and Saudi Arabia.

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But after seeing fewer opportunities in those states than it had expected, Mouchel announced it would end three decades of operations in the region and concentrate on its core UK activities.

Richard Cuthbert, chief executive, said: “Trading in the Middle East has again been difficult – we have therefore taken action to reduce our risk and negotiations are now at an advanced stage to dispose of our business in the region.”

However, Mouchel said it would focus on outsourcing opportunities and long-term managed service contracts, which it expected to increase on the back of post-election spending cuts.

John Lawson, an analyst at Investec Securities, said: “There will be opportunities in the sector after the election, but the prospect of political change is likely to keep investors nervous in the short term.”

The London-based company, which earlier this year was targeted for a bid by VT Group, suffered a £3.5m pre-tax loss for the six months to February, compared with a £16.3m profit for the same period last year.

Excluding impairment costs relating to the Middle East and a further £3.5m of asset writedowns, profit fell 28 per cent to £15m for the period.

Revenue was down 15 per cent from £365.6m to £312.4m, but the interim dividend is held at 2.25p. The shares, which have fallen almost a third over the past 12 months, on Tuesday dropped 10¾p to 197p.

FT Comment

Mouchel’s decision to withdraw from the Middle East is bold and makes a statement of intent in its domestic market. It is also risky. By leaving itself exposed to spending in the UK, the group faces fierce competition for a shrinking pool of business. However, its focus on non-discretionary spending in the regulated sectors, such as rail and water, will offer investors some comfort for the future. That said, political uncertainty is likely to stunt any share price growth in the short term. Currently trading at 8.5 times prospective earnings – a small premium to the sector – the stock looks pricey for all but optimistic investors with a view to long-term rewards.

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