As the latest free Ubuntu OS update is out called Wiley Werewolf (they always use the same two letters of the alphabet for their updates) I also like the sound of the next Long term support one due in 16.04 which is going to be called Xenial Xerus which is apparently means a friendly squirrel so not scary at all and actually quite easy to use once you get used to it.
Any way talking of tech just to remind you that Matchtec (MTEC) the £150m market cap., AIM listed, engineering and tech recruitment company will be announcing results on Thursday. This is a stock I have written on a couple of times or so this year. I have to admit it has been a bit underwhelming so far but maybe standing on around 10x with a 4.5% yield it might prove a bit more interesting if they have anything positive to say on current trading or not as the case may be.
While today talking of scary we have had results from a stock - Utilitywise (UTW) the £135m market cap, AIM listed, energy and water consultancy business which features in the Compound Income Scores Portfolio. This one has also been a bit underwhelming and regular readers may remember that I debated selling it at the last quarterly review given its poor price momentum and very volatile price action, but I gave it the benefit of the doubt given it continued to score well.
Any way the results seem to be a bit of curates egg as turnover and earnings are ahead of forecasts, but the dividend has come in a bit light at 5p v the 5.44p forecast. This does however represent an increase of 25% nevertheless and they say it reflects their confidence in the future. So on the face of it the figures seem fine, but then there are some issues in the detail, although these, to some extent, shed some light on and address some of the accounting concerns that have been levelled at this one.
Firstly, in a separate announcement today, they have renegotiated terms with one of their major suppliers and as a result they will get 80% of the payments up front on extensions in the same way as they currently do for new contracts. They have also agreed to apply this to historic contracts which means they will see an immediate inflow of £3.6m and a corresponding reduction in their accrued revenues which should go some way towards assuaging the critics on this front. They say they are hopeful of making similar arrangements with other major suppliers so if they do I assume the accrued revenue balances should reduce and cash increase further going forward.
Going back to today's figures they said that they had undertaken a comprehensive review of their accounting processes, which is good. However, they then go onto say they are re-stating prior year numbers due to accounting errors relating to provisions for consumption variances on historic contracts which turned out to be higher than the 15% they had assumed, which sounds bad. They did however confirm that current contracts are running in line with that assumption so it seems to be a historic rather than an on going problem. Hopefully the market will take this positively as a clarification on another area where there were concerns, but I guess there is a risk that the restatement of profits due to an accounting error could be taken badly. Coincidentally the magnitude of the hit seems to be close the amount they have just got in from the supplier so the net effect overall financially should be fairly negligible.
The other slight niggle in the statement relates to the rapid increase in the number of Energy Consultants whose numbers have risen since 31 July 2014 from 363 to 610 as at 31 July 2015. This was a key part of their growth strategy but they seem to have scaled this back slightly when they say in the statement:
"we have refocused our recruitment strategy to ensure we have the highest quality of staff capable of delivering our Trusted Advisor strategy effectively, in turn increasing our new customer conversion rates. As a result of this recruitment in the first quarter has been slower than anticipated and whilst the outlook for the current year remains good, overall headcount growth will be slightly slower than previously communicated."
The number of energy consultants is now planned to increase to over 800 by the end of 2016, although I'm not sure how many they had previously planned or whether this means costs and sales will be lower than expected or just costs.
In any event it seems like they have struggled to grow as fast as they wanted here, either they couldn't get the people or the new people didn't sell as well as they had hoped and as a result their future secured revenue at this stage of £26.2m is down 7% v last year. So overall I suspect there could be some downgrades to forecasts on the back of this which would be a continuation of the recent trend, which is not a good sign and so that will be worth watching.
Summary & Conclusion
A mixed set of numbers which may lead to some more downgrades, prior to which, based on existing forecasts for the current year leaves it on around 8x with a suggested 4% yield although the yield may also turn out to be lower given the miss on the dividend today. The rating is probably low enough to absorb some modest downgrades as the market was sceptical of this one any way. It will be interesting to see if the clarification on accounting and payment terms from suppliers can lead to it being viewed in a more favourable light and perhaps getting a re-rating, so a hold for now I would say on the back of this, but as ever time will tell.
Late morning update - well that didn't take long - hearing house broker Finn Cap is cutting PBT forecasts by 10% for 2016 & 8% for 2017.