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RedstoneConnect – full-year trading update, where next?

By Steve Moore | Tuesday 7 March 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.

Most recently writing on RedstoneConnect (REDS), I concluded that there looked to be continuing encouraging trading momentum and, at 1.425p, the shares were for watchlists. They were little changed on the noted share price level – before a “Trading Statement” announcement this morning…

This emphasises year to 31st January 2017 trading “materially ahead of market expectations” - with an anticipated pre-tax profit of around £1.5 million on revenue of circa £41.5 million. This is noted to see year-end cash of £3.2 million.

The cash compares to £2.9 million noted at the half-year stage, though that was £1.3 million net – and I’ll thus particularly look at the 25th April-scheduled results in terms of cash flow, with the company also having in November announced a £2.4 million (£2.25 million in cash) acquisition.

Other stated highlights include “good margin improvement across the business” and “strong order book underpinning medium term growth expectations”. The latter would normally concern somewhat on the short-term, but it is also stated “our sales pipeline appears strong and, combined with our solid recurring revenue stream, provides support and confidence in the outlook for the company”.

There is longer-term confidence “as innovation in smart buildings gathers pace” - and broker forecasts for around a doubling of underlying profit in the now current year. The shares have responded to a current 1.675p, which presently capitalises the company at circa £27.5 million.

The valuation looks high for the just reported numbers, but will not be on the suggested growth potential being delivered. Following today’s announcement, there is a good argument for a small, speculative buy at this juncture but, ahead of further comfort – perhaps with the results announcement detail, I currently retain this stock on the watchlist.

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