Stifel puts a crease in Berendsen shares

6th Dec 2016 15:01

(ShareCast News) - Shares in commercial laundry company Berendsen slumped as Stifel downgraded the stock to 'sell' from 'hold' and slashed the price target to 710p from 1,180p.The bank said it was cutting its full-year 2016 and 2017 adjusted pre-tax profit estimates by 8% to £154.4m and £167.9m, respectively, following the third-quarter profit warning in October.The cuts are mostly to reflect operational shortcomings in UK flat linen, with the remainder from UK Workwear. As far as the rest of the group is concerned, trading is as expected, Stifel said."Cultural changes are being put through a business that recently had enjoyed stability after implementing a strategy of step-wise changes, developed and owned internally. In this context, the 3Q16 profit warning took many by surprise," Stifel said, noting this was apparent in the valuation, which was has come a long back."We cannot shrug off the concern there could be more bumps ahead with group-wide initiatives not blending well, leading to further episodes of cost escalations. Historically the overwhelming attraction of the business was the strength of its cash flows."Back in October, Berendsen said the hospitality and healthcare business lines continued to be impacted by the legacy UK flat linen operations, as outlined in the half-year results statement.The group said continued operational instability during the peak summer months led to higher-than-expected costs being incurred in order to maintain customer service levels. Similar issues also impacted some parts of the Workwear business line in the UK.As a result, it said it expected adjusted operating profit for the year to be around £160m compared to £153.8m in 2015, which was below market expectations.At 1545 GMT, the shares were down 6.5% to 791.50p.