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Goodwin – 2:15pm ‘Interim Management Statement’ a cause for alarm?

By Steve Moore | Saturday 11 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.

Previously writing on engineering company Goodwin (GDWN) in September with the shares at 1980p, I concluded that the energy industry environment saw me cautious and avoiding the shares. They were little changed on the prior 1895p close before an “Interim Management Statement” announcement at 2:15pm. A cause for alarm?

The statement shows 9 month to 31st January 2017 revenue of £105.5 million, up 20.6%, but operating profit down by 4.2%, at £8.9 million, and pre-tax profit down by 8.5%, at £8.2 million, on the corresponding prior year period. These compared to, respectively, 14.2%, 4.6% and 0.3% increases at the half-year stage.

This is despite that “the refractory engineering division companies both in the UK and overseas are still increasing sales volumes and profit”, with “much fiercer competition for the lower level of orders being placed in the oil and gas industry”.

It is added that “the order input for the group as a whole is 10% lower than that at the third quarter last year” and that a “focus remains on trying to improve cash flow”.

The latter follows the half year results having shown a £14.7 million decline to a £36.7 million net debt position and an £11.1 million swing to liabilities outweighing current assets by £2.7 million – with the latter despite inventories increasing to £43.6 million. Non-current asset “property, plant and equipment” increased by £2.7 million to £65.2 million.

Unsurprisingly, the shares have reacted negatively to this latest update - down more than 7.5% to 1750p. This means a current market cap of £126 million, and the negative trading and financial trends see me, certainly for now, continue to avoid.

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