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Grafenia – FY results argue transition “has progressed well”. Has it?

By Steve Moore | Wednesday 13 June 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.

Results for its year ended 31st March 2018 from Grafenia (GRA) include the Chairman’s statement commencing “the transition of Grafenia plc has progressed well since I last wrote to you”. The shares have though responded lower, back towards 12p…

Revenue increased – to £14.6 million – though it noted mainly impacted by the inclusion of acquired sign firms and adjusted pre-tax loss increased from £0.93 million to £1.32 million.

The company noted “licence revenues have been increasing… only a few years after launching, Nettl now helps more than 150 partners in the UK to offer better design products to their clients. Nettl has also been showing quite encouraging signs internationally, especially in the Netherlands” and that “when the number of partners grows quickly (as it did at the end of this financial year) the recognised revenues for the accounting period understate the ‘run-rate’”. However, the traditional print business remains in decline - “and we do not expect this to change”. It is also stated that the reliance on this is decreasing every day – but it still “has been a significant drag on profitability in the last year”.

As it seeks to mitigate this, “quite recently, the board gained enough confidence that rolling-up sign businesses is a great use of our capital… On 13 April 2018 we announced we'd conditionally raised £3.44 million by placing 29,258,331 new ordinary shares”. I noted then balance sheet bailout funding rather than for immediate acquisitions then and concluded that I remain to be convinced of the investment proposition here.

At the year-end net debt was £3.04 million, with overall a £0.91 million net current liabilities position and £1.99 million of non-current liabilities. It is stated “investor interest did significantly exceed the amount raised” in April, though also admitted that, as it seeks to develop from its declining roots, currently “there is no way to know if the choices we made in the last fiscal year will prove to be successful”. Thus, certainly for now, I continue to avoid.

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