Good morning!

PuriCore (LON:PURI)

There's a profit warning from this disinfectant company. Having recently disposed of its endoscopy business, Puricore now has plenty of cash. At this morning's share price of 36.5p (and with 50.1m shares in issue), the market cap is currently £18.3m. This compares favourably with net cash of $3.9m at 31 Mar 2014, plus $25.3m cash (after costs) of the disposal, giving $29.2m, or £17.1m net cash before taking into account any trading losses since 31 Mar 2014. Or in other words, the company had 34.1p/share in net cash if you adjust the 31 Mar 2014 figure for the disposal. That price should provide a fairly firm floor for the share price in my opinion, and means that downside risk is limited from this point.

The business is more-or-less thrown in for free, which given its historic performance is probably sensible. However, markets look forward, not backwards. So with some big name clients in their supermarket focussed business, buying a consumable product, it seems to me that there is a viable business in here somewhere. Perhaps it needs a change of management to strip back costs, and have a sharper focus on sales growth?

Encouragingly, today's announcement repeats the previous possibility of a partial return of cash to shareholders, which would be an excellent move in my opinion. I don't like the idea of £17.1m burning a hole in their pockets, so shall be writing to the company to express this preference, and suggest other shareholders follow suit. I feel that a 20p per share cash return (about £10m) would be the best course of action.

There is some good news in today's announcement, with demand for consumable products strong;

In-market demand for consumable implementations has been encouragingly strong with existing and new customers signing on for the new products. Meeting this demand in a short timeframe has resulted in higher than expected service costs during the period, which is being addressed as an operational priority. The Board remains confident that with enhanced investment in sales and marketing resources, accelerated market share can continue to be achieved.

So taking that at face value, it means increased losses in the short term, but problems caused by demand being strong are the best type of problems to have, as they are fixable, and should lead to higher profits once fixed.

The disposal of the endoscopy business is described…

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