Local authorities and housing associations are divided over how to deal with the collapse of Connaught, according to Mears, a former rival of the failed FTSE 250 social housing maintenance company.

David Miles, chief executive, said the consultants who advise social landlords disagree on whether to split up Connaught’s work or reallocate it all to a single company.

“Half of them are saying to clients, you should never go with just one contractor again,” Mr Miles said.

“The other half are saying the opposite …Don’t go with two [or more] because that’s going to cost more money, you’ll get duplication, you’ll get customers complaining.”

He made the comments after Mears unveiled a rise in pre-tax profits for the six months to June, from £7.02m ($11.56m) in 2010 to £10.9m, helped by work it picked up after Connaught, its biggest competitor, fell into administration last year.

Stripping out exceptional items, operating profit rose 4 per cent to £15.2m. Mr Miles added that Mears was only beginning to benefit from the demise of its former competitor.

When Connaught collapsed, social landlords either took maintenance work back in-house or gave the work to other contractors temporarily and were only recently retendering.

Work that Mears has taken on from Connaught’s former clients include a £69m, 10-year arrangement with Barnet Homes and a £11.2m deal with Notting Hill Housing.

A 12 per cent rise in sales at Mears’ social housing operation helped first-half revenue improve from £253m to £293m.

The interim dividend is lifted from 1.9p to 2.15p, payable from diluted earnings per share of 8.97p.

The shares rose 16½p, or 6.3 per cent, to 276¾p.

FT Comment

The sudden death of Mears’ biggest competitor should benefit what is one of the last companies standing in the sector, but investors have taken a more cautious view. Shares in Mears have underperformed the FTSE All-Share by 8.7 per cent since Connaught called in administrators last September. Although the company talks about “unprecedented levels of opportunity in the public sector”, the order book has risen only modestly from last year’s £2.6bn level. Still, investors should be reassured that the company has converted 94 per cent of profits into cash in the past year. In 2007, when the outsourcing industry was still riding the crest of wave, the shares were trading at more than 19 times forecast earnings. That has fallen to less than 10 times, which could provide an entry point for the intrepid.

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