Good morning!



DRS Data and Research Services (LON:DRS)

Quite a nasty profit warning from this tiddler, which specialises in the area of electronic reading of exam papers, ballot papers, etc. In an IMS today it says;


Revenue for the first 4 months of 2014 is significantly down on the same period last year.


The trouble is that last year's H1 results were poor, with a £638 loss, as I reported here last August.

The outlook for the rest of this year sounds grim;


In addition it is now understood that a prospective large international census client will undertake their count manually. This means that there are currently no large scale census or election revenue opportunities in the current year.


So, as you would expect, they are now implementing cost cutting initiatives, and conclude that;


...the reduced level of revenue is likely to result in pre-tax profits being significantly below current market expectations.


It's at times like this that the Balance Sheet becomes the most important part of the accounts - i.e. if bad news happens to a company with a weak Balance Sheet, then it could go bust. However in this case I'm rather impressed with the last reported Bal Sheet. It shows a solid net cash position, and current assets were a very strong 278% of current liabilities. I'm prepared to disregard the long term liabilities of £1.8m, as that is mainly a mortgage on a freehold, so asset-backed.

The shares have been marked down 33% to 18.8p this morning, and that values the company at £5.7m, which looks potentially good value if they can turn it around. Trouble is, at this stage I don't know what the extent of trading losses (if they are now loss-making) in 2014 will be, nor whether they even have a viable business going forwards at all? More info is needed, but it's going on the more research list. I'd be particularly keen to see any updated broker notes on this company after today's warning.





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