* Confident will meet FY profit targets
* To buy ground maintenance firm in all-share deal
* Says continuing to perform strongly in H2
(Adds company, analyst comment, shares, detail)
By Rhys Jones
LONDON, July 15 (Reuters) - British support services group Connaught said it would meet its full-year profit target after it won larger than normal public sector contracts in the third-quarter, and said that it had agreed to buy maintenance firm Fountains.
"Public sector organisations are trying to drive costs out of their businesses and contracts are getting larger and more integrated and we're benefiting from that. We're happy we will meet the consensus forecast for the year," Chief Executive Mark Davies told Reuters in an interview on Wednesday.
"There's also plenty of scope for us to grow revenues further as larger more integrated contracts are awarded at the expense of smaller local players, especially in social housing."
The group is expected to report a pretax profit of 42 million pounds ($68.83 million) for the year to the end of August, according to a Reuters Estimates poll of eight analysts.
Connaught, which provides property services to owners and occupiers of buildings, also said it had agreed a 13.3 million pound all-share deal to buy Fountains, which will extend its environmental business nationwide. The company said Fountains' shareholders would receive 0.2377 new Connaught shares for each Fountains share, valuing Fountains' shares at about 88 pence, a premium of 43.1 percent on its closing price on July 14.
Connaught said it expected to issue about 3.6 million new shares, representing about 2.8 percent of its enlarged capital, for the deal.
"The deal will help us more than double the size of our existing environmental business," said Davies.
Shares in the group, which have increased in value by 3 percent in the last quarter, were 2 percent down by 1045 GMT, valuing it at around 460 million pounds. Analysts said there were worries about the deal as Fountains made a slight loss in its last full year, although trading seems to have stabilised recently.
Connaught, which generates around 80 percent of its revenue from the public sector, said it performed strongly into the second half of its financial year, with a high level of contract wins, especially at its social housing division.
"The year to date order intake of 650 million pounds in social housing is impressive and suggests strong momentum is continuing," said Brewin Dolphin analyst Mark Fleetwood.
Connaught also said its compliance unit was close to agreeing two further bolt-on acquisitions. (Additional reporting by Paul Sandle, Editing by Simon Jessop and Rupert Winchester) ($1=.6102 Pound)