Redcentric (LSE: RCN) shareholders will have woken up to a shock this morning. They saw more than 30% lopped off the value of their investments in early trading, after disappointing first-half results led to the ousting of its chief executive.
Chairman Chris Cole, speaking of the departure of CEO Chris Jagusz, said: “The results announcement today, whilst showing Redcentric’s resilience, does not demonstrate progress with regard to sales, delivery and execution. The Board has therefore decided that Redcentric’s growth ambitions would be better served with a change of leadership.”
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The figures themselves show the IT service management business’s revenue falling by 7.6%, with adjusted EBITDA down 11%, and adjusted EPS slashed by 23.5%.
But it wasn’t all bad. The resumption of the firm’s dividend provided a bit of a sugar coating to the bitter pill — although the interim 0.4p per share, if doubled for the full year, would only yield 1.3%.
Net debt was reduced, by 32% to £22.6m, which is approximately 1.4 times annualised EBITDA (based on the first-half value). I can’t help thinking it would have been better to wait until it was reduced further before putting dividends back in the table — especially as the first six months will have dented confidence in the rest of the year’s performance.
Cole did say that “Redcentric has made strong progress with its programme of driving operational efficiencies, cost control and cash discipline,” and that the firm has taken action to remedy these first-half failures. Maybe we’ve just seen a one-off weak period, but I’d want to see how the full-year goes before I’d consider buying.
Housing services firm Mitie (LSE: MTO) is one I’ve been cautious over for a while, and I’ve been looking at it again after Thursday’s first-half figures. What I’m particularly looking for is support for the company’s forecast return to progressive dividends after tough trading led to them being slashed. I think I still need a bit more convincing.
A 4% rise in revenue from continuing operations to £1,041m was welcome, although a 4.2% fall in operating profit (before exceptionals) to £38.4m took some of the shine off that.
A £255m fall in Mitie’s secured order book was also disappointing. The firm did report a “significant increase in pipeline,” but I’ll remain cautious of putting too much confidence in that until I see further conversion to committed orders.
The dividend was held at 1.33p per share, as per policy, but the statement that “we expect to hold the dividend flat at least until the completion of the transformation programme” might disappoint potential investors. Analysts were only suggesting a 2.5% lift for the full year, but it sounds like that’s on hold now.
Mitie has been making judicious disposals and is focusing on its core strengths and cost efficiency, with chief executive Phil Bentley saying: “We see improving prospects for growth ahead of us.”
The shares are on a very low forward P/E of 8.5 for the full year, but net debt of £186.7m takes the edge off that a bit. Mitie could well be a recovery bargain now, but in today’s tough market I’d need firmer evidence.