Good morning!

Lots going on today, so I'll probably be gradually updating this article all afternoon, so please feel free to refresh the page later.

A bad morning for investors in this one, my commiserations;

Solid State (LON:SOLI)

Share price: 367.5p (down 30% today - very volatile)
No. shares: 8.4m
Market cap: £30.9m

I last wrote about this company here on 29 Oct 2015, when it issued a profit warning for H2 (Oct 2015 to Mar 2016), blaming "contract variations and general market softening" - the contract concerned being a highly material MoJ contract for electronic tagging for offenders.

This led to a substantial reduction in broker forecast EPS, down from 56p to 36p. It seemed very strange to me that the share price rebounded from a low of about 390p on Nov 18, to around 600p in Dec 2015. The revised forecast clearly didn't support such a big rebound to 600p, as that equated to a PER of 16.7 - very high for a really ordinary company, with lumpy revenues.

MoJ Contract Update - it's bad news. The delayed contract is now cancelled;

Solid State plc (AIM: SOLI) has today been informed of a decision by the Ministry of Justice (MoJ) to terminate the MoJ's contract for Electronic Monitoring Hardware with its subsidiary Steatite Limited.  Steatite Limited is to enter into discussions with the MoJ regarding the terms on which the relationship will end.

The last bit is presumably to discuss if, and what amount, of compensation the company can negotiate. That depends on factors which are only known by the company, and not us - what were the contract terms, why was it cancelled, etc. If the cancellation was due to poor quality or service, then SOLI may not be entitled to any compensation at all. Or if the company did everything they were supposed to do, but the MoJ just changed its mind about wanting the product, then compensation may be payable to SOLI. We won't know until SOLI updates us again.

In terms of valuing the company, personally I would assume no compensation, to be on the safe side.

Financial impact - the house broker has put out a note today, saying that they had already removed the MoJ contract revenues from their forecasts (to be prudent), hence forecasts are unchanged on today's news.

Is this a market over-reaction then? The EPS forecast for this…

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