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Redcentric – “pleased to be able to report that trading is in line with expectations”. Hmmm…

By Steve Moore | Friday 5 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.

After announcing “Accounting misstatements” in November, Redcentric (RCN) is “pleased to be able to report that trading is in line with expectations” and “good sales momentum in the year” (to 31st March 2017). Hmmm…

The noted performance is though in relation to materially reduced expectations following the November announcement and subsequent half-year results.

Previously revenue had been expected to reach not far short of £120 million but the current forecast is for circa £106 million (prior year: £103.3 million, does 3%- growth represent “good sales momentum in the year”?), whilst the update also includes “net debt as at 31 March 2017 was £39.5m, an improvement over the previously reported average net debt position to 30 November 2016 of £42.0m.” This though compares to little more than £11 million that was being forecast in September.

It is announced that “amended debt facilities are now in place. Waivers in relation to historic covenant breaches have been secured such that the company is fully compliant with its facilities” and that “good progress has been made with regard to the remedial programme… The finance team has been further strengthened and a number of improvements made to internal systems and controls”.

This has been enough to help the shares currently higher to around 90p, capitalising the company at circa £134 million. However, even on having some restored faith here (though it announced in March that the FCA had notified that it has commenced an investigation following the accounting overstatements), there looks significant financial improvement needed to justify the valuation.

The company adds further detail will be included within the full year results “to be announced on 29 June”, but for now I continue to avoid.

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