Putting its poor interim figures out on a Friday has not stopped the Digital Globe Services Ltd (DGS) share price more than halving.
The share price has slumped by 72p to 58.5p, which values the customer leads provider for telecoms and media companies at £16m. DGS joined Aim just over two years ago when a placing at 159p a share raised £5.1m for the company.
House broker N+1 Singer had forecast the equivalent of a pre-tax profit of £3.84m for the year to June 2015, according to Morningstar.co.uk, but DGS will not be getting near to that figure. It lost money in the first half and talks about flat full year revenues of around $38.9m and EBITDA getting back to double figures. On that basis, EBITDA will not be anywhere near the equivalent of £3.84m.
All this seems to be very sudden. DGS talks about “delays in completion of client mergers and our investment programme”. Effectively, DGS increased its costs and did not have the business to cover them. Those client mergers were mentioned in the annual report but DGS said that in 2014-15 “we are confident in the ability of the group to adapt, to innovate and to maintain its continuing track record of profitable growth”.
There is nothing there to hint that the interim figures would be poor and there should have subsequently been a trading statement to update the situation. The alternative is that the management was unaware of the financial situation. Then again, DGS says that it reduced call centre costs in the second quarter so it must have had some awareness of what was going on. N+1 Singer certainly don’t appear to have been aware of anything.
The finance director did step down last November but the chief strategy officer, and former finance director of the US subsidiaries, took over on an interim basis.
In the six months to December 2014, revenues edged up 4% to $18.4m, while a pre-tax profit of $762,000 was turned into a loss of $587,000, before extraordinary items of $238,000. Depreciation and amortisation was higher but there would still have been a loss without the increase. There was a cash inflow but that was due to an increase in other liabilities and there are no notes in the interim or annual report to explain what these are.
There is $386,000 in the bank and debt of $584,000. DGS is assessing whether there are acquisition opportunities but financing them could be difficult with such a weak share price.
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