7:59 cut – FA.

FireAngel (FA.) – H1 Results

Today’s results are a real stinker, but are they a (kitchen) sinker?

The worst figure is probably that the EPS loss has increased from 3.2p to 5.0p, and this despite the dilutive effect of additional shares.

They confirm that full-year expectations will not now be met due to delays in contracts. This should come as no surprise to my readers and, to be fair to the company, anybody who read the last trading update properly. They now forecast a full-year loss, even at an adjusted level.

On the accounting side we have a warranty provision relating to what they describe as an “isolated legacy issue relating to a third-party supplier first identified in April 2016”. Well, clearly it wasn’t as isolated as previously thought because they’ve taken an exceptional charge of £1.5m in H1 of 2019. This relates to the previously disclosed battery issue and will have a cash effect over 2-3 years.

Next we have a £0.5m hit for more prudent (which, as is usually the case, seems to be code for “more correct”) amortisation. This has no cash impact.

There has been an adverse impact from the weakness of sterling versus the dollar.

They have admitted (as I previously speculated) that £1.1m of the inventory reduction was due to write-offs, however that does leave £1.4m of reduction due to improved processes and management.

Operating cash outflow was £0.8m over the half-year. They have £1.5m of cash and a receivables of £9.2m of which £3.2m is funded through their invoice discounting facility. They also have an overdraft facility. The size of their two loan facilities have not been disclosed which leads to some concern over their liquidity.

For 2020 they flag that increased investment in processes will be required, perhaps implying a profits forecast miss there also. We will have to wait for the brokers notes to be sure. [Edit 26/9/2019: I see that the consensus forecasts have been updated e.g. on Stockopedia to with 2020 EPS down 2/3rds]

[Edit: Only investors with a long time horizon should consider buying today. No holding.]