By Steve Moore | Monday 6 February 2017
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
While an update last week from digital promotions technology company, Eagle Eye Solutions (EYE) claimed “confidence in the group's prospects”, I questioned whether it was cash crunch ahoy. There is now an “Extension of credit facility” announcement.
This is that the company “is pleased to announce it has agreed a £1.5 million extension to its existing three year facility with Barclays Bank… the company now has a £3 million revolving loan facility available until 22 June 2019 to provide future support to the group's current strategic ambitions”.
Hmmm. With last week’s update having extolled revenue performance though also noting a £0.2 million net debt position at the end of 2016 from £1.3 million of cash (net) at 30th June, I suppose “to provide future support to the group's current strategic ambitions” is correct if those ambitions are to continue to be able to trade through 2017!
CEO Tim Mason though reckons “having seen our revenue increase by c.72% in the first half of our year, the increased facility will allow us to further deepen our relationships with our key Tier 1 clients, which will open up recurring transactional revenues in future periods”.
We’ll see. Though the noted growth offers some encouragement, I remain cognisant that debt for a cash-burning enterprise is long-term unsustainable - and there thus clearly remains elevated risk here. I’ll remain sceptical until there is clear cash performance evidence of balance sheet sustainability and thus, at the current juncture, continue to avoid/sell.
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