New CEO Douglas McCormick blames slower than expected trading as well as inherited legacy issues.
Companies: WYG
Management consultants WYG have seen their share price drop over 33% this morning as a trading update released today announces a profit warning and some "legacy issues" the Group's new CEO must deal with.
Investors will need to decide whether this is a classic case of kitchen-sinking from a new CEO, or a sign of more persistent issues.
A number of factors have played into the profit warning, namely slow trading in the first half of the year in some of the Group's European operations.
WYG's International Development operations in Turkey are seeing delays, and the "continuing softness" of the market in Poland has meant targets there will not be reached. Downgrading profit expectations across the Group's consultancy services, transport planning, and real estate operations have also hindered H1 17 figures.
Singers released a note this morning detailing their thoughts, which includes a downgraded PBT forecast 39% below previous expectations.
New CEO Douglas McCormick had this to say regarding the downgrade in guidance:
"Having joined the business at the beginning of June and undertaken a thorough review of the budget and current trading, the Board and I consider it appropriate to revise expectations as we are announcing today. The impact of the first quarter, largely from slow trading, together with some legacy issues make this both prudent and necessary."
The expected shortfall in performance in the first half and related working capital impacts will also affect the Group's net debt position, which is expected to double from £2.5m to £5m, according to Singer's forecast.
WYG currently trades at a PE ratio of 6x versus the industry median of 14, with a market cap of £65m. The Group's share price has taken a beating this year, falling from its peak of 136p in early January to today's price of 58p. Revenue has grown steadily in the four years to year-end 2017 which was reported in March, but profit margins and EPS have stagnated.