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Quarto – profit warning, so tries to emphasise “transitional year”

By Steve Moore | Friday 7 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.


Quarto (QRT) has announced a sale of its Books & Gifts Direct New Zealand business – this following a profit warning earlier in the week…

That noted that the company will announce its half year calendar 2017 results on 8th August, that “prior to entering the closed period, the group has been reviewing guidance as given to the market” and that, reflecting treatment of the amortisation of capitalised pre-publication costs in usage of 2016 as a baseline, “this process has revealed... the baseline guidance for 2017 and beyond has been set too high”.

Hmmm, doesn’t exactly inspire confidence in the financial controls and communications! Chief Executive Marcus Leaver adds “we look forward to announcing the appointment of a new CFO in due course and to enjoying the full benefits of our new organisational structure and systems upgrade by year-end”. I imagine shareholders now particularly do too Marcus! However, there was then worse with;

“The interim results will reflect the ongoing soft retail environment in the group's domestic markets, resulting in a lower-than expected trading performance in the year to date - as well as a more pronounced second-half weighting, natural in a pure-play publishing business. The group expects its strong publishing programme, combined with the continuing resilience of its publishing portfolio and enduring backlist, to perform significantly better in the second half.”

I’d though suggest the “soft retail environment” ain’t going anywhere soon, whilst Leaver then adopts the ole “transitional year” argument. This it is argued is with the company refocusing on publishing – with the $1.7 million gross asset (as at the end of 2016) Books & Gifts Direct New Zealand business the last non-core business. This has been sold for $0.6 million payable over the next two years, with also Quarto entitled to receive 50% of debtor receipts for the next year and 15% of the profit before interest and tax for the next three years (though “the estimated trading losses and transaction costs for the 2017 period to disposal are approximately US$0.5m”).

This all follows me previously concluding early this year, with the shares then at 290p, that the noted ‘challenging markets’ and net debt dynamics deter despite a suggested lowly price/earnings multiple and goodly dividend yield. Now well below 200p, this stance has been somewhat borne out - but the noted financial and trading concerns see me currently continue to avoid.


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