Good morning!

Redcentric (LON:RCN)

Share price:89.75p (+3%)
No. shares: 148.9m
Market cap: £134m

Trading Statement

For my previous (bearish) analysis of Redcentric, see the 23rd Dec SCVR at this link.

At the time, I had the impression the company had responded professionally to the discovery of accounting errors including the overstatement of historic profits and understatement of net debt.

But I still thought the episode raised such fundamental questions that I would have marked the shares down even lower than they were.

Today's trading statement for the year ending March 2017 says performance was in line with expectations, with "good sales momentum".

There was no evidence of theft in the accounting fiasco, and customers are apparently still happy, so it seems as if the effect of the errors was limited to giving shareholders a false impression of profitability.

Net debt reduces to £39.5 million from £42 million, and the banks have played ball:

Our lending banks have remained supportive over recent months and the Company is pleased to announce that amended debt facilities are now in place. Waivers in relation to historic covenant breaches have been secured such that the Company is fully compliant with its facilities.
My opinion

The shenanigans which took place here are a real shame, as it looks to have some quality services and a strong ability to win contracts (including a major NHS contract in January).

And it is probably my own fault, but I still can’t see how a market cap around the current level can be justified. Statutory PBT came in at just £0.3 million in H1, it’s under FCA investigation, the previous year was heavily loss-making after restatement, and the debt load is substantial (£39.5 million).

Even with the greatest of efforts and professionalism by staff and senior management in the current circumstances, I don’t see how a market cap of >£130 million makes any sense. An enterprise value of over £170 million, operating in the very competitive space of diversified IT services. Perhaps someone can help me to understand!

T Clarke (LON:CTO)

Share price:88p (+12%)
No. shares: 41.8m
Market cap: £37m

AGM Statement

Many new projects have been secured so far in 2017 by this building services contractor (mechanical and electrical contracting and similar services).

Interesting names on the list include Dyson, Thomson Reuters and Gloucester Royal…

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