Having cut its full-year pre-tax profit estimate from £3m to £2.3m at the time of the interim results in December, when 600 Group warned that market conditions were difficult and customer confidence to commit to purchases was a concern, analyst David Buxton at finnCap now expects pre-tax profits of £1.4m on revenues of £47m in the 12 months to end March 2016. That predicted outcome represents half his profit forecast less than 11 weeks ago, and 30 per cent less than the profits 600 Group reported in the 2015 financial year. The latest 39 per cent profit downgrade is based on a £2m shortfall of revenues. Mr Buxton also cut his 2017 pre-tax profit estimates from £3.9m to £3m based on a downgrade in revenues from £53.5m to £49.5m.
Given the scale of these downgrades, it’s hardly surprising that the shares have tanked, down 23 per cent from 13p to 10.5p this morning. It also clearly makes my decision to rate the shares a hold at 13p in mid-December the wrong advice (‘European markets hit 600’, 10 December 2015). At the time I concluded that priced on six times downgraded earnings estimates, the outlook for 600's European markets was already factored into the low rating. That’s clearly not the case now that the weakness the company experienced in its European markets is also being encountered in the US market, principally in its machine tools division. The situation could deteriorate further.