Redcentric (RCN) offers a masterclass in dealing with accounting faults. Just 12 months have passed since the internet services group first revealed it wrongly reported profits and debt, and in that time the finance team has been replaced, £2m of costs have been taken out of the business, and adjusted operating cash flows have improved by 64 per cent.
The next challenge, it appears, is attracting customers. Revenue in the six months to September 2017 was flat year on year and down 3 per cent half on half, which broker Numis attributes to a lack of contract wins as management’s focus was elsewhere. With the market for computing and cloud services so competitive, the broker isn’t too optimistic about sales growth in the next two years.
That said, adjusted pre-tax profit and EPS are expected to climb to £9.9m and 5.2p, respectively, in the year to March 2018 (from £8.5m and 4.3p in FY2017), according to broker finnCap. In the reported period, the group managed to boost gross margins to 59.4 per cent and shave 2 per cent off operating costs, to £21.4m. This resulted in a 1.7 per cent increase in adjusted cash profit to £9.1m, after stripping out £1.3m of one-off costs.
| REDCENTRIC (RCN) | ||||
| ORD PRICE: | 85p | MARKET VALUE: | £127m | |
| TOUCH: | 85-87p | 12-MONTH HIGH: | 100p | LOW: 67p |
| DIVIDEND YIELD: | nil | PE RATIO: | na | |
| NET ASSET VALUE: | 51.7p* | NET DEBT: | 43% | |
| Half-year to 30 Sep | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2016 | 51.8 | -2.54 | 1.17 | nil |
| 2017 | 51.4 | -0.03 | 0.04 | nil |
| % change | -1 | - | - | - |
| Ex-div: | na | |||
| Payment: | na | |||
| *Includes intangible assets of £85.5m, or 57p a share | ||||
