Good morning!
It really feels as if we're dodging bullets left, right, and centre at the moment. Not only are many/most small caps expensive, but there seem to be lots of profit warnings happening too. This certainly makes me nervous, and more prone to cut positions where I don't have strong conviction, and a positive recent trading update - or solid reasons to expect positive trading.
Certainly the market is being brutal with anything where there is any hint of trouble, so it's not a time to be holding things that are based on hope over substance in my view.
Although in most cases, profit warnings don't actually come out of the blue. Usually common sense can allow you to steer clear of problem companies, and problem sectors. The previous trading update can often contain clues to a forthcoming profit warning (e.g. we expect an H2 weighted year, or we expect to close large contracts by the year end, etc), and often broker forecasts have been trimmed in advance of the profit warning, as the company gave a steer to analysts as it becomes increasingly clear they are likely to miss forecasts. So it pays to look for these signs, and act on them, before the proverbial hits the fan.
Escher Group (LON:ESCH)
Share price: 155p (down 29.5% today)
No. shares: 18.7m
Market cap: £29.0m
Profit warning - the key sections say;
Escher Group Holdings plc (AIM: ESCH, "Escher" or "the Group"), a world leading provider of outsourced, point of service software for use in the worldwide postal, retail and financial industries, announces that the Group will not now close additional license sales that it had expected in H2.
As a result, Group revenues are now expected to be approximately $22m for the year to 31 December 2015 compared to $21m in 2014 on a reported basis. On a constant currency basis, revenues are expected to be approximately $23m (2014: $21m). License revenue, which is high margin, will be materially lower than expectations.
As a result the shortfall in license revenues will feed through to the adjusted EBITDA*. However, Escher still expects to report adjusted EBITDA growth in excess of 80% from $2.1m in 2014.
Following on from my introductory comments above, you can usually see problems coming. Indeed, I warned readers here on 14 Sep 2015 that…
