Slower development of new facilities is holding back Bagir's ability to win large volume orders
Companies: Bagir Group
Bagir (LON: BAGR), the creative tailor with facilities in Egypt, Vietnam and Ethiopia, has lost more than 30% of its value in early trading this morning with an H1 Trading Update that has disappointed the market.
The primary issue is slower than expected progress of developments in both Ethiopia and Vietnam. Management confirms this is holding back its ability to build a backlog of larger volume orders:
"Development of the new production lines at our facilities in Vietnam and Ethiopia in order to support larger volume orders has progressed, but is behind the original timetable, which has impacted the Company's ability to secure these orders."
The upshot of this is H2 Revenues are now expected to be "materially lower than market expectations". The Group also confirms that H1 2017 Revenues are $28m, 16% below the level achieved in H1 2016.
The slower than expected operational progress is disappointing, but importantly the Group remains net cash positive and EBITDA is also positive for H1 at $0.8m on an adjusted basis and $1.8m unadjusted.
EBITDA margins are low, but the new CEO is in the middle of an ambitious turnaround and this is a transitional period for the Group.
Broker N+1 Singer published a detailed update first thing this morning, following the Trading Update:
"Development of new facilities in Vietnam and Ethiopia have been delayed, for reasons outside its control (not permanent)...Forecasts have been rebased as a result, but EBITDA and net cash remain positive in this transition phase and management remains confident in its strategic plan."
Looking at the valuation, adjusting for today's market cap move down to c.£9m, the Enterprise Value drops to c.$3.5m. Brokers forecast EBITDA to be c.$1.6m for 2017, putting the shares on an EV/EBITDA of just over 2x.