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Connect Group – “materially” below profit warning… after an outlook “unchanged” just six weeks ago!

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.

Last year, after an April results announcement, Connect Group (CNCT) updated on trading towards the end of July. This year, with a results announcement on 1st May – when it was also announced that “Chief Financial Officer, David Bauernfeind, has decided to step down from his role and the board to pursue a new opportunity”, a further “Trading Update” already. Uh oh…

“Overall performance since the group announced its interim results on 1 May 2018 has been extremely disappointing, and the company has materially reduced its expectations for full year profit before tax”.

This includes with “for the first three months of the second half Tuffnells' external revenue of £43.5m is down by 12.3% (FY2017 £49.6m), and year to date revenue of £130.8m is down by 3.9% (FY2017: £136.2m). This has a disproportionate impact on profit for the full-year as the need to maintain Tuffnells' core service means costs cannot reduce in line with the shortfall” and “Pass My Parcel margins have further worsened year to date… the group has decided to close the proposition”.

Hmmm – were performances at these really considered not likely to impact as recently as six weeks ago when the company stated “expectations for the full year are unchanged”?!?

Having originally been to “remain with the group for sufficient time in order to ensure an orderly handover”, now David Bauernfeind “will leave the business with immediate effect” and CEO Mark Cashmore also “will be stepping down from his position… will remain with the business for sufficient time to ensure an orderly transition to new leadership”! It is additionally stated “the group confirms that the full year dividend for FY2018 will at a minimum be substantially reduced from that paid in FY2017”.

‘At a minimum’ is the key part I take from that – and is not surprising when also seeing there was net debt of £83.6 million at the 28th February half-year end! I’ve seen enough here – bargepole ahoy. Sell.

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