Good morning!
Grafenia (LON:GRA)
Share price: 8.5p (down 16.1% today)
No. shares: 46.1m
Market cap: £3.9m
Profit warning - I hadn't realised that the market cap had dropped this low, so will stop reporting on this trade printing company from now on.
Today's update explains the structural problems operating in this sector, and what makes it such an unattractive place to invest;
Our markets have never been more competitive, with established players, aggressive pricing from new European entrants and domestic commercial printers diversifying into the trade print sector. We are continuing to experience downward price pressure, which has intensified in the second half of the financial year. To combat this, we have increased our promotional activity, incentives and selective discounting.
Note how competitor Tangent Communications (LON:TNG) recently said it is leaving the stock market - with a takeover bid from management, although I note there was a higher competing offer subsequently announced. Both these companies are now too small, and struggling, to justify being listed. So I suspect Grafenia may not remain listed for much longer - the threat of de-listing can itself be a time-bomb under the shares, so personally I would be tempted to ditch them if I held, just to be on the safe side.
Due to the above factors, there's a nasty impact on profitability;
As a result of this and the challenging trading conditions, it is the Board's view that our full year results will be significantly below current market expectations.
Profits have been on a steadily downward course for the last 6 years, so continuing the trend, it looks as if y/e 31 Mar 2016 won't be much above breakeven in all probability.
Outlook - there is some more upbeat-sounding commentary on initiatives to improve performance, under the new CEO (who incidentally has been buying shares, and now holds just over 2% of the company).
Balance sheet - I've checked back to the last interim report, and the balance sheet looks alright to me. So this is not a financially distressed company, in my opinion.
My opinion - the company operates in a horrible, low margin, highly competitive sector. With profits trending down to zero, there's little to attract investors.
My main worry is that the company could well de-list, now that it is really too small to justify the costs & hassle of a listing. That would be…
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