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Tasty – 2017 trading update states “in line”, so why the precipitous share price decline?

By Steve Moore | Tuesday 9 January 2018

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 Trading Update for the 2017 calendar year from Tasty plc (TAST) includes that “trading for the period has been in line with expectations”. However, the shares are currently a further more than 5% lower below 30p having commenced 2017 at more than 140p. Hmmm…

The update does also include “the board has previously highlighted the difficult trading environment faced by the restaurant sector”, but March-announced results for 2016 included “trading since year has proved challenging and the directors are now expecting headline operating profit for 2017 to be below that achieved in 2016” and an August update; “trading across the estate below management's revised expectations”. Therefore, the now “trading for the period has been in line with expectations” is in relation to much-reduced expectations.

The half-year saw gross cash down to £1.6 million and there £7 million of debt, with a swing to a slight net current liabilities position and more than £9 million of non-current liabilities. There was £27.8 million of “property, plant and equipment” on the balance sheet – and it’s now updated that “the company has disposed of four underperforming sites and undertaken a sales-and-leaseback of one further site with net proceeds from these transactions totalling £2m. Two further sites are currently under offer and are expect to be disposed of in the coming months”.

No mention of the balance sheet result, but it is also stated that Finance Director Timothy Cundy has resigned, is serving three months' notice and “the company has identified a replacement with significant sector experience who will take over the finance function upon appointment”. Hmmm, in how timely a fashion has the resignation been announced then?

The market cap is now circa £17.5 million, though with the board expecting a further restaurant sector deterioration in 2018 and balance sheet concerns, I remain bearish. Sell / avoid.

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