Just as the market had begun to forgive Redcentric (RCN) for its historic accounting errors, investors in the IT services group were hit with a profit warning. The problem, according to management, is that government hosting contracts have been moved away from the group to government-backed facilities, while upfront mobilisation costs and investment in the group’s recent win of the Yorkshire and Humber Public Sector Network contract have hit profits. Thus, management trimmed its adjusted cash profit and revenue forecasts for the 2019 financial year by 10 and 5 per cent, respectively.
But that’s not to say that all is bad. The contract win allays our fears over the group’s ability to win new contracts, and while it won’t show up on the income statement until around 2020, once up and running the Yorkshire and Humber contract will provide up to £20m of revenue, annually. Management’s focus on costs has also paid off, boosting operating cash flow to 125 per cent of adjusted cash profit from 54.3 per cent last year and reducing net debt by 30 per cent.
Analyst at Numis expect pre-tax profit and EPS to be flat in 2019, at £8m and 4.3p, respectively.
| REDCENTRIC (RCN) | ||||
| ORD PRICE: | 86p | MARKET VALUE: | £128m | |
| TOUCH: | 85-86p | 12-MONTH HIGH: | 106p | LOW: 67p |
| DIVIDEND YIELD: | nil | PE RATIO: | 253 | |
| NET ASSET VALUE: | 52p* | NET DEBT: | 36% | |
| Year to 31 Mar | Turnover (£m) | Pre-tax profit (£m) | Earnings per share (p) | Dividend per share (p) |
| 2014 | 58 | -2.6 | 2.0 | 1.00 |
| 2015 | 94 | 7.8 | 5.5 | 3.50 |
| 2016 | 102 | -6.1 | -2.9 | 4.50 |
| 2017 | 105 | -4.2 | -1.6 | nil |
| 2018 | 100 | -0.5 | 0.3 | nil |
| % change | -5 | - | - | - |
| Ex-div: | na | |||
| Payment: | na | |||
| *Includes intangible assets of £82.5m, or 55p a share | ||||
