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EU Supply – interim results, valuation justified?

By Steve Moore | Thursday 7 September 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.

Previously writing on e-procurement software provider EU Supply (EUSP), I noted the market cap now approaching £13 million and looked forward to reviewing the cash flow detail in the September results announcement. This has now been made…

Although emphasising “maiden operating profit”, the P&L for the first half of 2017 shows, on revenue up from £1.55 million in the first half of 2016 to £2.17 million, an overall loss of £0.13 million (H1 2016: adj. -£0.66 million). Particularly £0.15 million of tax credit, helped cash balances up slightly to £1.04 million. However, there was also £1.22 million of borrowings.

The net current asset position fell slightly to £0.26 million, with non-current liabilities increased slightly to £1.25 million. Non-current assets were only £0.05 million. It is stated that “the board believes that the group has sufficient cash for its short and long term needs”, but then also that “discussions are continuing with an existing customer on further contracts for larger enhancements. A targeted increase of additional development capacity would be required to deliver any additional orders before end of the year or in early 2018, in addition to already contracted work”. Hmmm.

It is also stated that “the group is still experiencing pricing pressure in most markets”, though that it “anticipates continued strong growth during the second half of 2017 compared to the same period last year… in line with market expectations”.

The expectations of house broker Stockdale Securities are for a full-year loss of £0.1 million on revenue of £4.4 million, rising to a small net profit on revenue edging past £5 million next year and then stronger progress in 2019. However, this all compares to a now £13.5 million market cap and I’d want to see stronger financial delivery before really considering paying this up.

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