Weak trading update
SpaceandPeople (SAL.L) issued a trading update indicating that Q114 performance was below management expectations and that the outlook for the year was below both internal and external forecasts. Being a relatively high margin business model, lost revenues have a greater impact on earnings and pretax guidance is now around half the level at the time of March’s finals. The group, however, remains profitable and cash generative and the dividend, generating a premium yield, is well covered by the revised EPS.
Revenue shortfalls across business streams
With four main business streams across the UK and German markets, a poorer period in one area would normally be compensated for by better trading elsewhere, but, in this instance, there are weaknesses across the portfolio. Although there is little change to the company forecast group revenue, this is due to higher than expected revenues (+£1.25m) being generated in the early stage, 51%-owned S&P+ operation, and an additional £50k from the Indian business, neither of which as yet make a noticeable difference to the earnings line. Lost revenues in the retail and promotional operations are unlikely to be recouped in later months as brand and venue owners timetable their spend to correspond with other priorities. Pre-tax profits are now expected to be around £1.5m after one-off costs of £150k, a reduction of £1.4m on previous forecasts. With the new venues already brought on board, the group is indicating that there will be modest revenue growth next year, with a corresponding recovery in pre-tax profits to the £2.0m to £2.5m range, from £3.5m. Our revised forecast is for £2.3m.
Balance sheet remains sound
The warning has no implications for the upcoming dividend payment or for capital expenditure plans, with the guidance pointing to the group ending the year with £1m net cash. There are also £2m of unutilised facilities in place. With the dividend covered despite this sharp downturn, we are assuming that it is maintained in FY14 and FY15, given that the group continues to generate positive operating cash flow.
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