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EU Supply – framework agreement signed, but valuation merited?

By Steve Moore | Friday 16 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.

Shares in e-procurement software provider, EU Supply (EUSP) are currently a further more than 17% higher, at 17p, on the back of a “Framework agreement signed” announcement. Hmmm, a framework agreement – so no specific financials then?

Er, nope – it is stated that this is a 3 year agreement (with a customer option for a further year) “with an existing customer for additional services” and with “a total value of up to €3.6m” (i.e. it could be materially less). Discussions on specific orders to be delivered in 2017 and 2018 are noted to be “ongoing”.

Hmmm. Results for 2016 showed a pre-tax loss of more than £1 million on revenue of £3.4 million, net current assets reduced to just £0.34 million and a net liabilities position of £0.80 million.

Broker to the company, Stockdale, is currently forecasting loss reducing to £0.1 million on revenue of £4.3 million for the current year and “see risks on the upside to our sales forecasts”, including noting additional sales traction likely with EU directives on e-procurement to come into force by November 2018.

However, this compares to a current market cap of £11.5 million – which already looks to discount significant future progress. Admittedly, my previous caution here has seen significant gains eschewed in the last year but I remain of that view and currently continue to avoid.

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