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Dillistone – profit warning, dividend cut, fundraising needed, but reckons a-ok due to unidentified new product!

By Steve Moore | Monday 5 June 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.


A “Trading & New Product Update” announcement from recruitment industry software group Dillistone (DSG) commences that, having previously noted some market softness, “as we have moved further into the year, we have seen some improvement in terms of the volume of new business wins and are pleased to have taken a number of clients from our direct competitors”. Sounds encouraging, but what? The shares currently down 15% (at sub 72p)! Better read on…

“However, a significant majority of our new clients have been new or young businesses with relatively few users purchasing on a subscription, as opposed to a licence model. While these subscriptions may be valuable in the long term, they have a much reduced impact on short term revenues and this has not allowed us to catch up on the slow start to the year. The group has also been informally told that a contract with a major client is likely to expire later this year or early next.”

Uh oh. And towards the end of the announcement there it is… “the results for the full year are expected to be significantly below market expectations”. CEO, Jason Starr, though expresses ‘delight’ – this with the early response to a new product development on which it is stated “we believe that it has the potential to transform the nature of our business and to deliver significant shareholder value”, but is currently of a “confidential nature”. Hmmm.

The announcement notes “receiving a non binding letter of intent from an organisation which is globally recognised in the market it serves and which plans in principal to adopt the product on release” and that “the new product addresses a market need which, in the view of the board, is global in nature and has the potential to be very significant for the group. We believe that our new product will be unique in scope, its commercial model, and its method of delivery”. Also though, “fundraising for completion and launch of the product is now being explored… In view of the proposed fund raising, the board expects to reduce its dividend until the benefits of its investment in the new product flow through to the group's balance sheet… the new product is not expected to be profitable before 2019”.

So a profit warning, dividend cut, fundraising needed and hopes with an unidentified new product looking at best to be profitable in 2019! Er, that would currently be then bargepole / sell.


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