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Escher Group – “marginally ahead” of 14th November “Trading Update” (it means profit warning!)

By Steve Moore | Friday 12 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.

Postal, retail and financial industries point of service software provider Escher Group (ESCH) has updated including “revenue is expected to be marginally ahead of the figure published in the Trading Update on 14 November 2017 and adjusted EBITDA is expected to be in the order of $2.8m”. The shares have responded slightly higher to a current 137.5p, though that compares with 200p exceeded last year…

The latter though was prior to a significant drop on the back of a trading update… on 14th November! That “Trading Update” was actually a “materially lower than expectations” trading warning - adjusted EBITDA of $5.7 million having been delivered in the prior year and though this down from $3.4 million in the prior year first half to $1.4 million the company having previously confidently pointed to its “pipeline of business for H2 2017”.

It now seeks to reassure that it “finished the year in a net positive cash position” and “have now structured the business to produce solid EBITDA returns and to generate cash, even in the absence of a major, one-off licence sale”.

There was also a small net cash position at the half year stage - so the above further hints at the bullshit nature of ‘adjusted EBITDA’ and the current market cap here is circa £26 million.

With “even in the absence of a major, one-off licence sale” again emphasising the lack of visibility, this should also be reflected in the rating and, even then, I’d want evidence of the cash generation ability of the now structured business before considering other than avoid.

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