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Maintel Holdings – having “expected” second half of year gross margin recovery…

By Steve Moore | Wednesday 6 December 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.


Half-year results from systems integrator and managed services provider, Maintel (MAI) included “gross margin is expected to recover in the second half of the year following recent contract wins at an improved gross margin percentage”. There’s now a Trading Update from the company commencing that its “ICON cloud services have continued to grow strongly in the second half of 2017”. Sounds encouraging, but what about that margin?

Well, the ICON growth has followed “ongoing investment in the platform” and two higher gross margin Azzurri Communications legacy contracts have migrated away more quickly than expected, there have been delays to customer installations as a result of a prolonged Avaya Chapter 11 process (bankruptcy court approved reorganisation on 28th November) and lower than anticipated gross margins have been achieved from recent acquisition Intrinsic Technology. Uh oh.

These mean “it is now evident” that the previously expected recovery of gross margin will now not happen – profit warning ahoy… and “the board now expects adjusted EBITDA for the year ended 31 December 2017 will be in the range of £12.5m to £13m” - house broker finnCap had previously been looking for £16.2 million.

The company seeks to reassure with a “current intention for the total full year 2017 dividend to grow 10% year on year, in line with existing guidance” and that it “at this juncture… remains confident in delivering substantial growth in revenue and EBITDA in the full year to 31 December 2018”.

Hmmm, “current intention” and “at this juncture” prefaces don’t suggest great confidence and a few months ago the company was expecting second half of this year gross margin recovery. As such, I’ll wait to see evidence of its ‘substantial growth’ – and would want to see cash impact, not just revenue and EBITDA. Meanwhile, its update serves as yet another warning to currently be extremely wary of those reckoning on a positive swift about-turn in performance.


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