I suppose I should be thankful for small mercies: shares in building services group Bilby (LON:BILB) have risen by nearly 80% from the all-time low of 24p seen in April.

However, that’s cold comfort when for the second consecutive week I find myself recording a loss of more than 60% on an outgoing SIF folio stock.

As it’s the end of May, I’m reviewing stocks that have been in the SIF folio for at least nine months. This month, there’s only one - Bilby - so I’m going to take a final look at this disappointing performer and explain why I’m sceptical about its potential as a value buy.

I’m also going to catch up with the performance of my International SIF and check whether I need to sell any stocks from this virtual portfolio.

Bilby: value buy or value trap?

If my new rule of selling immediately after a profit warning had been in place last year, SIF’s losses on Bilby would have been considerably smaller. I’m confident this is the right approach and as always with these things, wonder why I didn’t do it sooner.

However, Bilby shares have bounced back strongly from the lows seen in April. Does this suggest hidden value for contrarian buyers? I’m not convinced. I think several factors suggest that the balance between risk and reward could be poor.

I’ve documented the timeline of Bilby’s decline previously. But in summary, we’ve seen a founder share sale and retirement followed by two profit warnings. This combination doesn’t bode well, in my view.

More bad news to come? A more specific concern is that the guidance provided in Bilby’s second profit warning (in March 2019) seemed pretty open-ended to me. Two major contracts appear to have run into problems. One has been delayed and the other - with the Ministry of Defence - has been terminated but is subject to “dispute and resolution proceedings”. No clear estimate of cost has been given for either contract.

Underlying EBITDA for the group is expected to fall from £6.3m last year to “2.0 to £3.0 million”, but this guidance excludes costs associated with the MoD contract termination and other, unspecified, restructuring costs.

The problem contracts relate to Bilby’s P&R subsidiary, which is expected to report a loss this year. Bilby doesn’t break out results by subsidiary…

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