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Driver Group – full-year loss & bailout fundraising. “Renewed confidence”?

By Steve Moore | Friday 17 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.

Driver Group (DRV) has announced self-admitted “disappointing” results for its year ended 30th September 2016 and a bailout fundraising, though argues that stakeholders should soon be able to “look forward to the future with renewed confidence”. Hmmm.

The results show a £7.44 million deterioration in net debt to £9.91 million, though the company seeks to emphasise “the underlying loss before tax of £1.5m in the first half was reduced to an underlying loss before tax of £0.4m for the full year”.

However, it is also stated that “key” to going concern “is the receipt of £8m from an equity placing and new banking facilities of £8m” - such new debt facilities agreed to “become effective and drawable upon completion of the placing”. I.e. it’s bailout financing time here - hence “a minimum price of 35 pence per share”, against a prior closing share price of 47p, and the dividend being axed.

The new CEO notes “despite impressive revenue growth in recent years, we had failed to effectively manage our cost base and cash collections”, with focus now “returned to the group's core business offering of construction claims, dispute resolution, and the provision of expert witness services” and “firmly on profit and cash generation”.

It is argued that the outlook for the group's core global business “remains strong” and added that “the first four months of this current financial year have shown a marked improvement compared with the equivalent period in the previous year, with underlying profit before tax improving by £1.1m and ahead of internal forecasts”.

That offers some encouragement but, also cognisant of “it is always difficult to predict volumes in a professional services business such as ours”, I’d want to see some sustained net cash generation before becoming more comfortable here. This currently remains an avoid.

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