finnCap suspends forecasts pending review
Companies: Wameja Limited
Fintech firm eServGlobal (LSE: ESG.L) put out a trading update for the financial year to 31 October this morning, reporting that revenues were expected to be below previous expectations, in the range of €14m.
ESG's revenue is expected to be between €14 and €14.5m, below expectations, with total contracted bookings reaching €21m, 60% greater than last year. Frustratingly for the company, several of the contracts signed will see revenue recognition fall into future years, as the company missed the opportunity to pull revenue forward.
In regards to the company's revenue position, management said:
"While [revenue]... is disappointing and the timing of revenue recognition is frustrating, the Company has continued to provide strong evidence of the turnaround of the business and the significant growth in orders is testament to this progress."
In FY17 ESG expects to grow sales "significantly" following the increased order flow.
The group has reported costs in line with expectations, down about 18% at €19.5m (€23.8m FY15), due to restructuring, and had a cash balance of c.€6.4m at the year end. Management says costs should be €1m below FY16 next year and said there is scope for even further improvement.
City stockbroker finnCap said it was revising EBITDA expectations from a "hoped-for" breakeven to an AUS$7.5m loss:
"...major contracts have been signed in the PayMobile business at the year-end; however, that revenue will be recognised in later years. Management has therefore cut FY October 2016 revenue guidance from A$28m to just over A$20m. Cash costs will be A$27m as expected, sharply reduced from the A$40m LY.
This leads us to revise our EBITDA expectations from a hoped-for breakeven to an A$7.5m loss for the year."
finnCap said it was suspending FY2017 estimates whilst new CFO Andrew Hayward reviewed operations:
"...we will reissue them with the prelims in December. The revenue news is disappointing but given the cash balance and a strong pipeline – contracted bookings are up 60% YoY to A$29.5m – and falling cost base, the group should not require further funding."
In regards to its investment case, finnCap said its focus remained on the "excellent progress" being made by the HomeSend JV with MasterCard which "remains on track to break even next year and in the longer term generate exceptional profits."
John Conoley, Exec Chairman said he was proud of the company despite its poor start in FY16:
"Although we did not fully recover from that start by the end of the financial year and reach our target of cashflow breakeven, we have embarked on FY17 with justified optimism in the core business."
He welcomed the appointment of Mr. Hayward as CFO, saying it would help the business capitalise on the progress "we have made":
"Our optimism applies equally to the HomeSend Joint Venture and recent progress is consistent with HomeSend's ambition to reach the breakeven point in 2017."
The dual-listed French firm's share price fell 5% on the news, a relatively minor adjustment considering underlying market concerns about the US election are continuing to hamper many smaller firms.