eg’s interim results were impacted by the timing of a number of deals, as described in the June update. Revenue for H1 was £1.1m lower than the prior year, and the group slipped to a £0.9m EBITDA loss. We make modest downgrades to forecasts to reflect the recent challenges, but the refreshed Board is taking steps to address operational weaknesses. The period saw a number of new contract wins, and with the order book standing at over £16m, revenue visibility remains high.
Interim results impacted by deal slippage: At £2.5m, revenues were £1.1m lower than H1 16. Gross margin fell to 54%, reflecting lower business volume, and was the main driver of a £1m fall in adjusted PBT to a £1.3m loss. Net cash ended the period at £1.66m and we note management commentary that it is satisfied with the forecast future cash balance for the remainder of FY 17E.
Restructuring announced: The strategic review in the period concluded that the product suite remains industry leading and that the back-office optimisation market remains sound. However, eg’s sales efforts require restructuring. New hires are being made, with increasing management focus on revenue generation.
Major new & repeat contracts signed: A number of new contracts were signed during the period, including a deal with a leading social networking corporation (announced Aug 2016) and a contract with the UK’s largest consolidator of closed life funds. The group also secured repeat contracts with a UK-based Business Process Outsourcer and a European Investment bank.
Visibility remains high: eg’s contracted order book now stands at £16.2m. This is a £0.7m improvement on the H1 15 figure, and equates to 2x FY 17E sales – an extremely significant level of visibility
Estimates realigned: Following the results we make revisions to forecasts, these are summarised overleaf. Our revenue forecasts decline by 14% and 8% for FY 17E and FY 18E respectively. EBITDA is 7% lower in both years.
Although the interim results demonstrate some of the sales challenges, the release is not without positives. The new contract wins demonstrate momentum in the business, and revenue visibility remains impressive. The strategic review, undertaken by a largely reconstituted board is taking measures to get the group back on the front foot.