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Blancco Technology – 2 months after placing, cash performance below expectations due to non-payment of receivables. Hmmm…

By Steve Moore | Thursday 6 July 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.

Having in May been “pleased to announce the completion of a placing of 5,800,000 new ordinary shares… at a price of 169 pence per placing share” (I bet it was pleased - as otherwise it was cash crunch within weeks!), Blancco Technology Group (BLTG) has today released a “Trading Statement” which currently sees the shares down by more than 20% at sub 120p. Those who took part in the placing won’t be “pleased” then!

The statement – for the company’s year ended 30th June 2017 – sees it “pleased to report that the positive revenue momentum reported at the interim results has continued through the second half of the year. For the financial year ending 30 June 2017, revenues increased approximately 40% over the prior year, approximately 30% in constant currency, in line with market expectations”. Er, ok, though revenue is of course vanity and cash the reality – and I’m guessing the statement gets worse from here.

“However, cash flow and net cash are below market expectations due to the non-payment of £3.5m of receivables, the majority undertaken in the prior year. Taking a prudent approach to these receivables we have decided to provide against them by taking a charge of £2.2m, resulting in Adjusted Operating Profits of not less than £5.5m and Adjusted EBITDA of not less than £7.0m (subject to fully closing the accounts and audit). This reflects the Group's intention to apply a more prudent approach to revenue and income recognition on this type of contract in the future. The Group will be announcing its final results on Tuesday, 3 October 2017.”

Hmmm, so £3.5 million of receivables were to now fully expected to be paid, but it is now considered prudent to provide for £2.2 million of them?!? This also follows me previously noting financial planning and contract visibility concerns and the arrival but then abrupt departure of a Chief Financial Officer here.

Together with a “more prudent” financial recognition approach considered necessary, a focus on cash flows in the results rather than stated “adjusted operating profits” and “adjusted EBITDA” is certainly also necessary. It has also been announced since I last wrote that board member since 2013 and Chairman since March, Rob Woodward, is to “step down at around the time of the company's results”.

In all, I retain a lack of confidence in what is going on here and thus also a stance of bargepole/sell.

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