Good morning! For the avoidance of doubt, I won't be doing any April Fools today, as Twitter is so full of them, I've had to turn it off. So that should mean a lot more work gets done today!
Getech (LON:GTC)
This £20m market cap (at 65p per share) data provider to oil exploration companies has this morning released its interim results for the six months to 31 Jan 2014. I've been wary of this share since the company warned on profits on 17 Feb 2014. As I explained in my report that morning, the operational gearing (i.e. high margin sales, on a fixed cost base) is such that the reported decline in sales would have a savage impact on profit. My figures indicated that a drop in profit from £1.4m to somewhere in the £250-500k area was likely for H1 this year.
It's even worse than that, with revenue of £3.1m (down 22%) delivering a profit of £233k, down 83% on H1 last year (£1.4m profit). That's a basic EPS of only 0.6p, so at this run rate full year EPS would only be 1.2p. Put that on a PER of say 15, and you only have a share price of 18p. The current share price is actually 65p, so the market is factoring in nearly a 4-fold increase in profitability from the run rate in this set of interims. I fail to see how that is prudent.
On the positive side, Getech has a good Balance Sheet. The working capital position is strong, with £5.6m in current assets, against only £2.3m of current liabilities, so a ratio of a very healthy 243% there. Long term creditors are negligible at £88k. Working capital includes net cash of £3.6m, which has supported an increased dividend, up 10% to 0.44p, although providing the final dividend is maintained or increased, it looks on track to deliver 2.1p forecast full year divis - a reasonable yield of 3.1%. Although I wouldn't hang my hat on an uncovered dividend like this one.
So, lousy figures as expected. What is the outlook like, as that is crucial for the valuation? There is a fair bit of detail in the outlook section, but the key paragraph (in my view) says this;
We start the second half of our…
