In June, SCISYS revealed that it had been hit by cost overruns at a fixedprice development project. Also, as a result of the weak euro and the subsequent consensus forecast cuts, SCISYS said it might be in breach of its UK banking covenants. Following negotiations with the group’s UK banks, the covenant issue has now been favourably resolved. This is partly due to the group’s strong balance sheet, which includes the freehold property on its Chippenham HQ. Consequently, this leaves the shares looking attractive to investors, with the stock trading below book value.
Covenants tested in August relate to a loan from the group's principal UK bankers to part-fund the acquisition of Xibis, made in December 2014. The relevant bank has waived the 30 June 2015 breaches and has agreed revised covenant thresholds for H215 and FY16, providing the group with sufficient headroom to support trading in-line with the board's current expectations. The second bank, which provided loan finance for SCISYS' acquisition of the freehold of its Chippenham HQ in May 2011, has confirmed that, subject to achievement of no less than £0.5m EBITDA for FY15 (we are forecasting FY15 EBITDA of £1.2m), it will issue a letter of waiver when its covenants are tested on the publication of the consolidated group audited accounts for FY15. SCISYS says it remains comfortable with current market guidance for FY15 and foresees no issue in meeting the minimum EBITDA threshold stipulated.
We will review our forecasts following the interim results on 24 September