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Escher Group – late-year ‘trading update’ here seemingly means only one thing

By Steve Moore | Tuesday 14 November 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 4th December 2015 “Trading update” from Escher Group (ESCH) was a warning that “the group will not now close additional license sales that it had expected in H2”. There was no late-year update in 2016, but this year there’s now a “Trading Update”. Hmmm...

The update commences that the provider of outsourced, point of service software for use in the worldwide postal, retail and financial industries, announces that… “the group will not close the additional licence sales that it had expected in H2 2017 due to the postponement of major contracts”. Uh oh.

Credit for it then providing new guidance (though not for the use of adjusted EBITDA – altered bullshit earnings – as the earnings metric and it would also have been useful to have included the prior guidance comparative); “Revenues are now expected to be approximately US$18m… The adjusted EBITDA, excluding exceptional items, is expected to be approximately US$2.7m for the year to 31 December 2017. As at 31 December 2017, the group expects to have a neutral net debt/cash position. Escher continues to manage its fixed-cost base in order to remain profitable, even in the absence of major one-off licence sales. The 2017 exceptional restructuring costs incurred are expected to be similar to those in 2016 at US$0.3m.”

House broker Panmure Gordon was previously forecasting adjusted EBITDA of $5.9 million on revenue of more than $21 million and net cash up by $2.3 million to $2.4 million. Also, how “exceptional” are the restructuring costs as the company “continues to manage its fixed-cost base”?

After noting “disappointed with the postponement”, Escher Chief Executive Liam Church adds “the volatility in revenues and earnings caused by the timing of these licence sales remains a characteristic of our core Postal activity”. This lack of visibility should be reflected in the rating – and, even then, I’d also want to see the company having proven its ability to return to meaningful net cash generation from here before considering other than avoid.

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