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As expected following a hurried statement last week, powered access and electric vehicle maker Tanfield has warned on profits. Sales deteriorated markedly in June, management has put the brakes on its rapid expansion strategy, and there could be job losses. Furthermore, some customers have been slow to pay, inventory levels have risen and supply chain constraints have caused some delays in deliveries.
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All this has the hallmarks of too much, too fast, in particular the acquisition last year of Snorkel, a powered-access provider in the US. Working capital has ballooned - there were warning signs of this several months ago - and Tanfield is not getting paid quickly enough by its customers.
This is particularly worrying, as it suggests a breakdown in financial controls, which is often the precursor to financial distress. Tanfield is insulated from that to a degree, because it has net cash on the balance sheet, but the expected reduction in sales and the expected pressure on margins going forward could soon erode that cushion.
The share price performance over the past few days has vividly illustrated the old adage "a share that's fallen 90 per cent can always fall another 90 per cent". A year ago, the shares changed hands at 184p; today they're just a twentieth of that.
From one of Aim's darlings in 2007, Tanfield has become a short-seller's dream of late. Its shares have shed almost 90 per cent of their value in the space of a week, and are fairly priced at 9p.
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-IC-1.5.4a-prod - 31/10/2008 13:11:34 - carlos.princz
