“Robotic Process Automation” group Blue Prism (PRSM) has updated commencing “the board is pleased to report that the strong sales momentum seen in the first half of 2018 has continued, with a strong second half, particularly in the fourth quarter”. So why a circa 15% share price decline, to around 1400p? Particularly as the announcement also includes “the board expect to report revenue for the year ended 31 October 2018 slightly ahead of expectations”, “cash generation for the year ended 31 October 2018 has remained strong and as such net cash at 31 October 2018 is expected to be higher than the board's expectations” and “the board is encouraged by the exit monthly recurring revenue generated by the sales momentum in the financial year ended 31 October 2018, and as a result, expects revenue for the 2019 financial year to be comfortably ahead of expectations”. So why the share price decline?
Firstly, despite increased revenue, “the EBITDA loss is expected to be larger than current expectations” - this attributed to continued investments and increased sales commissions, and “it is the intention of the board to continue to prioritise investment for continued growth, and as such they currently expect EBITDA losses for the 2019 financial year to exceed those in the 2018 financial year”. CEO Alastair Bathgate argues, “I am very pleased with the progress we have made in 2018 and the results we are set to deliver. It is a reassuring sign that our strategy to invest in growth during this phase of Blue Prism's evolution is the right one, in order to create long term value for our shareholders”.
Except, of course, there isn’t profit to be pleased with and to reassure that the strategy is the right one – revenue is vanity (it isn’t difficult to deliver by selling at a loss!) and it is only the net cash generation which tends to determine if investment does create value. The company-stated “cash generation” seems to ignore the outflows – brokerage Whitman Howard, for instance, now forecasting £50 million year-end cash and that comparing to a start-of-the-year £16.3 million before more than £39 million of new equity.
It also looks for revenue of £54.1 million, rising to £88.5 million for the now current year and towards £114 million next year. However, still also talking “EBITDA losses”, this compares to a still market cap of well above £900 million! My stance remains sell.
Filed under: Blue Prism, Mayan Energy, Richard Jennings, Intu, Greene King, Dignity, CVS Group, Ariana, PowerHous
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