Driver Group (DRV:52p), a consultancy that provides clients in the construction and engineering sectors with specialist services including project management and dispute resolution support services, has downgraded its 2019 profit guidance following a slowdown in the rate of client conversion, in particular in the Middle East and south-east Asian markets. Specifically, a number of expert witness/dispute resolution projects that were expected to convert in the first half of the 2018-19 financial year have either been delayed or deferred.
The directors are now guiding investors to expect adjusted pre-tax profits of £3.5m in the 12 months to end-September 2019, well shy of the £4.4m previously estimated by analysts at house broker N+1 Singer, albeit Driver increased underlying pre-tax profits organically by more than half from £2.5m to £3.8m in the 2017-18 financial year. On this basis, I now expect 2019 adjusted EPS of 5.6p, or 5.35p on a fully diluted basis. The directors reinstated the payout at the time of the annual results in mid-December by declaring a dividend of 0.5p a share and are committed to a progressive dividend policy. A £5.1m net cash pile worth almost 10p a share and decent cash conversion underpin this commitment.
| 2019 Bargain Shares portfolio performance | ||||||
| Company name | TIDM | Market | Opening offer price on 01.02.19 | Latest bid price 11.03.19 | Dividends | Percentage change |
| TMT Investments | TMT | Aim | 250¢ | 362¢ | 0p | 44.8% |
| Mercia Technologies | MERC | Aim | 29.57p | 38.0p | 0p | 28.5% |
| Jersey Oil & Gas | JOG | Aim | 205p | 225p | 0p | 9.8% |
| Inland | INL | Aim | 57.75p | 62p | 0p | 7.4% |
| Ramsdens Holdings | RFX | Aim | 165p | 180p | 0p | 9.1% |
| Augmentum Fintech | AUGM | Main | 102.4p | 108p | 0p | 5.5% |
| Bloomsbury Publishing | BMY | Main | 229p | 235p | 0p | 2.6% |
| Futura Medical | FUM | Aim | 14.85p | 15p | 0p | 1.0% |
| Litigation Capital Management | LIT | Aim | 77.5p | 78p | 0p | 0.6% |
| Driver Group | DRV | Aim | 74p | 50p | 0.5p | -31.8% |
| Average | 7.8% | |||||
| FTSE All-Share Total Return index | 6,852 | 7,036 | 2.7% | |||
| FTSE AIM All-Share Total Return index | 1,023 | 1,017 | -0.6% | |||
| Source: London Stock Exchange | ||||||
The trading update is clearly disappointing given the scale of the turnaround that attracted me to the company in the first place. Indeed, N+1 Singer had previously upgraded its 2018 and 2019 EPS forecasts by more than half in the past two years. It’s equally frustrating because new business enquiries are running at historically high levels, up 20 per cent year on year, and across all sectors and regions. Around 70 per cent of Driver’s turnover is derived from outside the UK, and its global offering is attracting a growing blue-chip client base.
Nonetheless, Driver’s shares have been marked down 31 per cent from the entry level in my 2019 Bargain Shares portfolio and are now priced on a cash-adjusted forward price/earnings (PE) ratio of 7.5 based on the new guidance. That’s an incredibly harsh rating for a company that has been successfully streamlined by a new management team that has plans to create further operational savings. The sell-off is a buying opportunity.
