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Image Scan – ‘strong sales of industrial X-ray inspection systems have continued’, BUT…

By Steve Moore | Friday 14 September 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.

I’ve been cautious on X-ray screening systems company Image Scan Holdings (IGE) this year – and note the shares currently leading the fallers today on the back of a “Trading Update”

This commences “The strong sales of the company's industrial X-ray inspection systems reported in the first half have continued into the second”. So why a current approaching 15% share price decline, towards 3p?...

“Sales of portable X-ray systems to security and counter terrorism forces have been slower than hoped for in the second half” Ah! It seeks to mitigate “interest in the range of systems remains high”, “volume of quotations made to customers is strong” and “there is no evidence that this decline in orders reflects anything other than changing Government budget schedules and the typically ‘lumpy’ order intake that has been a characteristic of the business from time to time”.

It expects total full-year (to end of this month) sales of “between £3.4m and £3.8m… this will deliver a trading profit performance of close to break even”. However, that with it “trying to finalise several orders before the year end” and, of course, ‘trading profit’ is not actual bottom-line; “coupled with the exceptional costs associated with the aborted fundraise and acquisition of Todd Research, which are estimated to have a total impact on profit of £270k, the company expect to make a loss in FY 2018”.

It emphasises ‘confidence’ looking ahead – but the above compares to a pre-tax profit of £0.48 million on revenue of more than £5 million last year, cash (net) of £0.75 million and current assets over total liabilities of £1.85 million at the half-year stage (following revenue of £2 million, prior year H1: £2.1 million) and a current market cap of £4.4 million. There’s a pre-close update scheduled for 24th October and, currently, I retain prior caution and continue to avoid.

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