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Digital Barriers – “Framework Contract and Trading Update” announcement attempts to emphasise positives, BUT…

By Steve Moore | Tuesday 2 May 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.

Digital Barriers (DGB) has announced a framework contract and a trading update emphasising sales growth and “EBITDA is expected to be in line with market expectations”, BUT…

It is noted that the framework contract is “one of several that were in the final stages of negotiation at the time of the group's trading update on 24 March 2017”. That “trading update” was in fact a trading warning, it including that “whilst the group currently expects to secure all of these awards, it has now become clear that some or all of them may now be secured in the next financial year”.

It is now updated that “none of those contracts were secured by 31 March 2017, four have already been secured in the month following the end of the financial year and three of the remaining four contracts are expected to close in the first half of the current financial year”. Hmmm, and also what about the other one?

The latest “trading update” emphasises year ended 31st March 2017 46% increased (+23% organic) contracted total revenue of £31 million and “reported total revenue expected to be £26.5 million, an increase of 26% over the prior year”. However, it is also noted “reported organic revenue expected to be £16.2 million, a decrease of 11% over the prior year” and, following the warning as recently as 24th March, I’d argue EBITDA in line with expectations not exactly an achievement!

The company seeks to reassure by also noting “total secured backlog under contract at 31 March 2017 increasing more than 75% on the same position last year at £11.4 million” and that “the current financial year has begun as we would have hoped”, but I also note “net cash at 31 March 2017 was £1.0 million”.

That compares to £3.4 million noted with the half year results – and it having been seen as necessary to establish a £10 million revolving credit facility. I again ask what are the chances of positive share price momentum being met with an attempted discounted fundraising? – and this currently remains on my bargepole list.

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