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InnovaDerma – follows March profit warning & Executive Chairman share sales last month with… another profit warning!

By Steve Moore | Tuesday 19 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.

Life sciences, beauty and personal care products company InnovaDerma (IDP) has updated on trading for its year ending 30th June – commencing “revenue for the period increased strongly by 23.5% on a constant currency basis to approximately £11m (FY2017: £8.9m). However,”, Uh oh…

“significant one-off investments made across the business in launching new brands in the last quarter… stock availability issues for Roots, and lower than expected revenue out of the US in June”. Uh oh… “profit before tax will be approximately £0.65m, lower than previously expected”.

In January, on a first half trading update and as the shares were sliding towards 230p, I noted the numbers suggest the current full-year forecast quite an ask – house broker finnCap having been forecasting a pre-tax profit of £2.4 million on revenue of £13.8 million. Less than two months later, it was “revenue growth for the year will now be less than anticipated… the profit before tax is now expected to be similar to FY17”. The latter was more than £1 million though. It now argues “sufficient working capital to fund the anticipated growth of the business” and;

“The demand for Roots has consistently outstripped supply in retail as a number of the brand's best-selling products were out of stock for significant periods throughout this HY contributing to lower revenue and profit. The company has taken significant steps to resolve the supply chain and is adding new inventory to meet expected future demand from retailers including Boots… As the company expands the Skinny Tan and Roots range, together with a substantially wider distribution network, it gives the board much confidence for the future… still finalising budgets for 2019 and 2020, but expects FY19 revenues to be in excess of £14m with profit before tax in excess of £1.6m.”

Hmmm. The recent history though far from inspires confidence in that – I note finnCap has previously forecast a £4 million pre-tax profit on revenue of almost £20 million for that year! With the shares now heading down towards 100p, the market cap is a reduced circa £15 million but for now I continue to avoid.

P.S. I also note, despite this latest profit warning being “partly owing to the significant one-off investments made across the business in launching new brands in the last quarter” (my underlined), in early May Executive Chairman Haris Chaudhry, though retaining a more than 34% stake, “sold 775,000 ordinary shares… at an average price of £1.32 per ordinary share in order to satisfy a personal tax requirement due in Australia”. Hmmm!

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