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Why Tribal Group plc Sank Over 10% Today

Shares in Tribal (LSE: TRB) are among the biggest fallers in the index today, being down 11% at the time of writing, after the company released an update that has not been well received by the market.

The release states that profit for the year is now expected to be below the company’s previous guidance. The reason for this is a delay in contract completions and the achievement of key contract milestones, which had been expected to take place before the end of the year. They are now due to take place next year, which means that they will contribute to profit in 2015 rather than in 2014, and will underpin the company’s current guidance for next year.

The potential for this to happen was flagged by the company in its previous trading update on 14 November, where it stated that guidance for the year was dependent upon contract completions prior to the end of the year. So, while not a shock, the news is nevertheless somewhat surprising for investors and has hurt market sentiment in Tribal.

Positive News

Clearly, a profit warning is never good news for any company and, as such, Tribal’s share price fall is not a major surprise. However, the reason for the downgrade to guidance is not all that severe, given that it is a delay to contract completion rather than a cancellation or loss of contracts. Therefore, Tribal is still set to fully benefit from the respective revenue streams, albeit in a different financial year than had previously been anticipated.

In addition, Tribal also released positive news flow today regarding two key contracts that have been signed. The first is a contract to deliver a student management system across all Technical and Further Education Institutes in Queensland, Australia, while the second is with the University of Alberta in Canada and is also with regard to the provision of student management systems. Although the profit warning will dominate views of the company in the short term, the contract wins are good news for investors in Tribal and show that it is making good progress in terms of its international offering.

Looking Ahead

In terms of growth potential, Tribal is forecast to increase its bottom line by an impressive 11% next year. That’s ahead of the wider market’s expected growth rate and would come after three years of strong growth. Despite this, Tribal still trades on a relatively low valuation, with it having a price to earnings (P/E) ratio of just 11.3. This equates to a price to earnings growth (PEG) ratio of around 1, which shows that Tribal seems to offer upbeat growth prospects at a reasonable price.

Furthermore, given that the profit warning is due to delays in contract completion, as opposed to the loss of contracts, now could prove to be a good time to buy a slice of Tribal.

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Peter Stephens has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.