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K3 Business Technology – another profit warning, faith lost. Sell.

By Tom Winnifrith | Thursday 18 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.

K3 Business Technology (KBT) has updated that it “now believes that the results for the year to 30 June 2017 will be significantly below current market expectations” as “certain large Enterprise contracts have not been secured as expected”.

It adds that its “operations elsewhere are seeing encouraging progress and healthy cashflows” and that it “has secured pilot customers for its new cloud-based modular technologies”. However, the announcement concludes that;

“Given trading conditions and the group's performance to date, the board has started a review of the company's resources with the intention of refocusing the growth strategy around the cash generating business units and the large installed customer base.  A further update on this will be provided in due course.”

This suggests restructuring uncertainty adding to current trading uncertainty – and the shares have slid to 150p to sell. This is particularly disappointing since less than two months ago we noted the management positive and key changes in a reorganisation programme largely complete.

There is perhaps a good recovery potential from here, but we have now lost faith. The company seems unable to deliver any earnings visibility. The relatively new management team seems to view having a dialogue with anyone other than institutional investors as beneath them and those words about focusing on operations that generate cash give us grave concerns about the balance sheet/funding position.

As such, we apologise profusely for not having banked the big gains we once sat on, but, on this initial 148p offer price recommendation, now move to sell.

As for the management, the market cap means that it will find it hard to attract institutional buyers. If anything some of its City pals will be forced to sell as the company is too small for the funds they manage according to their internal mandates. As such the only buyers of this stock are retail and having treated retail with contempt in the good times, nemesis may well await.

This article first appeared on the Nifty Fifty website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next share tips from Tom & Steve and a new shorting piece from Lucian this week click HERE

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