Good morning!

A shortish report today, as I have to travel up to Oxford, for a brainstorming afternoon at Stockopedia's HQ. It's a pleasure working with the Stockopedia team, as they're not only super-intelligent, but also super-decent people. After one particularly bad experience in 2013, I now only work with people that I like and respect. Life's too short for anything else.


SCISYS (LON:SSY)

Share price: 73p (up 6.6%)
No. shares: 29.0m
Market cap: £21.2m

Trading update - this sounds encouraging to me, and it looks as if the company has moved on from the problems encountered in H1;

The Directors are encouraged by the performance of the Group during the second half of 2015 and believe that the underlying results will comfortably meet current market guidance.

Despite the continuing headwinds created by adverse foreign exchange movements, the Group's trading performance for the second half of the year indicates that the Board's previously-expressed confidence, that problems encountered in the first half were a temporary anomaly, was well founded.  As announced on 14 October 2015, the isolated contract that had been the cause of the problems was brought to a mutually satisfactory conclusion, ensuring that SCISYS could fully focus its efforts on its unaffected activities which represented the vast majority of the Group's projects.

It's good to see that the problem contract which gave rise to the profit warning in Jun 2015 has now been resolved. Although I would still like to know how this problem arose, and what internal controls have now been put in place to prevent a recurrence.

Outlook - this sounds reasonable;

The Directors remain confident that current market guidance for 2016 will be achieved.  Although we anticipate that the relative weakness of the euro will continue to have an impact on our financial performance in 2016, we have implemented currency hedging contracts to mitigate the risk and this is reflected in the guidance.

My opinion - It seems to me that a business model which is susceptible to major problems occurring without warning on a large contract, needs sorting out. Perhaps stronger internal review processes are needed before contracts can be signed? Perhaps a complete re-think of what contract terms are used is needed? If another accident is just waiting to happen, then I wouldn't want to repurchase the shares I used to hold in this group, even though it has some attractions, such…

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