Yet more fallout from the government's austerity drive, with support services group Eaga warning of a hefty restructuring to come.
The company runs the government's Warm Front fuel poverty programme, which gives grants to low-income households for energy saving improvements. In the coalition's comprehensive spending review, funds for this scheme were slashed, and on the day Eaga's shares fell sharply.
Today the company spells out the damage a little more clearly. Funding for Warm Front - which accounts for 44% of its revenues - will be cut from £345m in the current year to £100m by 2012/13. Eaga said:
As a result of this lower funding, activity in both our managed services and heating & renewables segments, during both the current and next financial years, will be significantly lower than the board had expected prior to the [spending review].
So it is planning a restructuring, which could cost up to £20m over the next two years. The news has sent the company's shares down another 11%, off 7.75p at 63.25p. The day before the spending review they stood at 108.25p. Panmure Gordon analyst Andy Brown cut his recommendation from buy to sell, saying:
Another disappointing trading update, driven largely by the already known issues from the comprehensive spending review, but we expect further downgrades will occur. It is hard to see where new buyers will come from at this stage and we see the share price as "dead money".
