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Diligent earnings outlook downgraded on mounting costs, Craigs report says

Diligent Board Member Services [NZX: DIL], the governance app maker forced to restate its accounts, is expected to post weaker earnings than previously expected in the current financial year amid mounting costs, according to a Craigs Investment Partners analyst.

The New York-based, NZX-listed company is expected to report earnings before interest, tax, demortisation and amortisation of US$19.1 million in calendar 2014, down from a previous forecast of US$25.6 million, and trimmed annual sales expectations by US$1 million to US$81 million, Craigs' analyst Stephen Ridgewell said in a note. The target share price was cut to $5.80 from $6.35, though Ridgewell retained his 'buy' recommendation. The shares rose 1.2 percent to $4.30, and have gained 12 percent this year.

"We have been surprised by the extent of overhead cost growth, and hence Ebitda margin decline, over the past several quarters," Ridgewell said. The reduced share price was "due to lower revenue forecasts for new/upsell products and lower overall margin expectations."

Last week Diligent said profit jumped to US$1.94 million in the three months ended March 31, from US$1.23 million a year earlier. First quarter sales rose 40 percent to US$19.1 million, while recurring costs climbed 58 percent to US$10.9 million, as general and admin costs almost doubled to US$6.8 million.

The company is holding its annual meeting in Auckland today, its first since Diligent completed the restatement of its accounts for the 2010 through 2013 financial years after incorrectly recognising revenue, having also had to backtrack after granting too many options to chief executive Alex Sodi. One-off costs in the quarter for investigation and restatements were US$779,000 in the first quarter, and aren't recognised in recurring costs.

"Diligent has provided minimal commentary and guidance around likely cost growth during its 'dark' period, making it difficult to forecast accurately," said Ridgewell. "As it turns out, operating costs (recurring costs) blew out."

Admin costs made up 36 percent of Diligent's revenue, compared to around 15 percent to 20 percent for a mid-sized software company, Ridgewell said.

(BusinessDesk)

Comments and questions
1

still trading on about 12x forecast EBITDA - not bad for a SaaS tech company. the most compelling value of any of the tech cr@p out there.