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By Tom Winnifrith | Sunday 11 February 2018
Disclosure: Financial Investigative Media Limited, which is not owned by Tom Winnifrith but by a trust for his dependants, owns shares in companies mentioned in this article. 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.
Reach4Entertainment (R4E) has served up a trading statement which is, to use the technical term, nonsensical bollocks. But the shares are a very strong hold, at worst, at 1.95p.
We are told that 2017 profits will be "broadly in line" with forecasts excluding charges of c£1 million for restructuring carried out by the new CEO Mark Boyan, that is to say firing people. So that means an underling PTP of perhaps £100,000 maybe a tad less.
Then we are told that 2018 results will be in line which means a pre-tax profit of just over £1 million according to the latest note from 3rd rate broker Allenby. But hang on Henry.
Allenby forecasts sales going from £80 million to £9o7 million as a number of one off factors are reversed or eliminated. We were told that Boyan had an expertise which would see gross margins go up by up to 3 percentage points thanks to better buying. But Allenby forecasts lower gross margins. We were also told that Boyan was taking out £2 million of cost ( which sort of ties in with a £1 million charge of firing folks) yet Allenby forecasts central costs going UP by £2 million. That seems madness and nothing like what we are told or indeed what is in the statement about taking out cost.
So Allenby forecasts a pre and post tax profit of just over £ 1 million in 2018 putting the shares on a PE of c 18. That is pushing it. But Steve and I think that Boyan is underpromising to over deliver and that Allenby's numbers are wrong and that Reach knows it. So profits should be £3 million + and that makes the PE far too low. On that basis the shares are, at worst, a strong hold.
I continue to target 3.5p+ to sell, notwithstanding this monumental PR own goal.
This article first appeared on the Nifty Fifty website which Tom Winnifrith runs with Steve Moore & Lucian Miers. To access the website ahead of the next share tip from Tom & Steve and a new shorting piece from Lucian shortly click HERE
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