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UPDATED: Gentrack shares slide on profit downgrade one month after listing

Gentrack Group shares [NZX:GTK] tumbled this morning after the utilities and airport software company issued a profit downgrade just one month after listing on the NZX.

The stock initially dropped as low as $2.10, a fall of 19%, and recently traded $2.15, wiping nearly $30 million off the market value.

It is the first time the shares have fallen below the offer price of $2.40, having previously reached a high of $2.59.

Chairman John Clifford is currently on a plane to Australia and executive director James Docking is on an analyst conference call so wasn't able to comment immediately.

"These guys have been running this company for a long time, they've been a major shareholder, it shouldn't end up like this," Brian Gaynor, executive director at Milford Asset Management, told Businessdesk.

"In the business world, unexpected things do happen, but when you're doing an IPO and raising money from the public you should be in clear air so that the potential for anything negative happening is very, very small."

Gentrack confirmed this morning that its financial results to September 30 will be lower than forecast it its prospectus.

The company now believes pro forma earnings before interest, tax, depreciation and amortisation (ebitda) will be between $12.1 million and $12.5 million, a decline of 10.7%-13.6% on the previous forecast.

Net profit is expected up to $1.2 million lower at between $2.5 million to $2.8 million on revenue of $38.1 million to $38.5 million, a decline of 5.2%-6.2%.

Gentrack says the downgrade to earnings is due primarily to two issues.

First, a delayed “go-live” on a major project following a recent dispute between Gentrack and the customer on the payment.

Gentrack expects this to be subject to mediation.

And 
second, a delay in signing a substantial upgrade contract with an existing customer, which is still expected to be signed by the financial year-end.

Despite the lower profits, Gentrack’s board of directors do not expect any change to either the forecast dividend of $2.6m to be paid in December 2014 or the outlook for FY2015, which remains as forecast in the prospectus.

The company listed shares on the NZX on June 25 following an IPO that raised $36 million of new capital used to repay debt taken on for its management buyout in 2012 and to cover IPO costs.

At the same time, existing shareholders including chairman John Clifford and executive director James Docking raised about $63 million selling existing shares. After the sale, existing investors hold about 43.2% of Gentrack.

The Auckland-based company competes with SAP and Oracle for utility billing systems and with Lockheed Martin, SITA and AirIT for airport systems, according to its prospectus.

Customers include Genesis Energy, Meridian Energy, MightyRiverPower, Australia's Origin Energy and the UK's SembCorp Bournemouth Water among the electricity and water utility customers for its Gentrack Velocity billing product.

Airport companies that use its Airport 20/20 management system include Auckland International Airport, Sydney Airport, Hong Kong International Airport and John F Kennedy International Airport.

 

More by Duncan Bridgeman and Businessdesk

Comments and questions
20

Every Securities Lawyer in the Country will be rubbing their hands with pleasure.

FMA must launch an investigation. Very similar situation to what I recall happened with Wakefield Hospital IPO many years ago.

Don't hold your breath. FMA is too busy chasing shadows and prosecuting handed-down-on-a plate cases (like the finance companies) and the NZX is pre-occupied with diluting compliance requirements (new NZAX market, see?).

Agree - surely they were aware of this during the IPO process. Issues of this nature do not suddenly just appear!!

Far from ideal…particularly given the pricing at the top end of the range

Were these risks disclosed in the Prospectus?

The NZX and FMA should investigate - this situation is unlikely to have happened entirely post the float.

This is a very bad look for the NZ capital markets.

That is exceptionally poor form.

But I thought earnings didn't matter in tech companies? Turns out they do.

You know 30 September is only 2 months away!!! That is an exceptionally short amount of time to get something so wrong.

How could they NOT know there was a risk of this happening?

And they didn't know about this at the time the price was set for the IPO?

It's only a month since they listed..!

Inevitably either through costs of mediation, or keeping the customer happy, they'll have to take a cut on the project value, or maybe all of it...?

It also shows what a knife edge they are on where they projected growth would be flat (so now call it declining), and for EBIT where a 5-6% drop in revenue results in a 30-50% drop in NPAT.

Of course they'll still pay a dividend, it'll come out of the capital they raised..!

very good comment, thanks

If I was the 'customer' the subject of the dispute it would be very tempting to disclose/leak the date on which the dispute was first brought to the attention of Gentrack.

This needs to be investigated thoroughly by someone independent.

Good time to buy shares in a profitable company rather than blather on like this. S*** happens in business !

If this were Australia, new shareholders would be invited to take a class action against the company and its directors-see eg QBE- do we have such a law company in NZ?

...take a hard look at themselves and how any and every tech company can list prices which seem too good to be true.

If they want to keep their cred.

Trading at 60x price to earnings - even following todays plunge.

Sweet.

Closing market cap of $162m divided by midpoint of forecast NPAT of $2.5 to $2.8m.

Hmmm yum I love my tech company value for money.

Keep those tech company IPOs rolling - us retail investors can't get enough.

Anyone know who the customer is?

Who were the buyers of the IPO shares?

suckers, apparently