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InnovaDerma – “distribution channels will increase significantly this financial year”, so why a current 15% share price fall?

By Steve Moore | Wednesday 7 November 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.

“UK developer of life sciences, beauty and personal care products”, InnovaDerma (IDP) has made an AGM update including “our distribution channels will increase significantly this financial year as our UK retail store network grows from c.800 (FY2017) to c.2,400”. So why a current 15% share price fall, towards 100p?

The statement concludes “we expect revenues for the first half of the financial year to be similar to last year and the full year is expected to be approximately £14m”. The company’s year to 30th June 2018 saw £4.2 million of half-year revenue developed into a full-year £10.7 million – with it now noting “exclusivity periods end for our flagship products and leading new retailers come on board in the coming months… we expect the second half of the year to be disproportionally higher than in previous years given the phasing of new distribution”.

Ah – the dreaded ‘disproportionally higher’ second half weighting; frequently known as a deferred profit warning! There does appear good reason for such a weighting here but also the company itself considers it “now at a strategic inflection point” – I suggest this meaning elevated execution risk and note from earlier this year forecast reductions and it going from “confident in meeting market expectations” to “expect… below our earlier expectations” in less than a month!.

There thus looks good reason for scepticism – and it still needs to show delivery to suggest current year revenue and also, of course, bottom-line forecasts are achievable. As such, I remain of the view that presently - at best - this is only suitable for watchlists.

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