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SimiGon – profit warning, but reckons all good going forward. Hmmm…

By Steve Moore | Thursday 16 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.

A “Trading Statement” announcement from simulation technology company SimiGon (SIM) includes that “the company remains optimistic in its outlook and confident in its existing forecasts for the current financial year” and “great revenue and profit visibility for 2017 and beyond”. So why are the shares currently sliding back below 20p?

This is as for 2016 the company now expects to report results below market expectations. This follows certain costs of meeting additional client demands and having “not yet received the requisite client confirmations which would enable the company to recognise all the programs revenue”. There have also been “procedural delays in concluding the signatory processes underlying its contract with the Israeli Air Force”.

It seeks to mitigate that “the revenue and profit which could not be recognized in the period will be incremental to those existing expectations for the years ending 31 December 2017 and 2018” - with an adjusted pre-tax profit of “at least $0.3 million on revenue of circa $6 million now expected for 2016, compared to a prior $1.4 million on revenue of $7 million and $1.6 million on $7.7 million for 2017.

However, the announcement explicitly notes 2016 performance “affected by circumstances that are outside of our control” - which doesn’t inspire confidence in “great revenue and profit visibility for 2017 and beyond”!

Also noted though is “more than $8 million (currently equating to 12.5p per share) of liquid cash as at 31 December 2016… the company intends to propose a share buy-back program later in the financial year. Although wary of a foreign company listed on AIM, the potential valuation sparks interest and sees this added to the watchlist.

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