Member log in

Gentrack refuses comment on profit warning 6 weeks after listing

Gentrack Group [NZX: GTK], which touted its "proven revenue and earnings record" in its $99 million share sale in June, is refusing to answer questions after a shock profit downgrade hammered its shares on Friday.

Shares of the June-listed company dropped as low as $2.10 on Friday, below its $2.40 offer price, after it said profit in the 12 months ended Sept. 30 was now expected to be $2.5 million to $2.8 million, below the $3.7 million forecast in its prospectus. Sales would be between $38.1 to $38.5 million, missing the prospectus forecast by as much as 6.2 percent. While the company immediately privately briefed analysts on the downgrade, it declined to make any public comment.

"We have nothing to add to or comments to make regarding the notice on Friday," said Aaron Baker, general manager in an email to BusinessDesk this morning. Chairman John Clifford and executive director James Docking were unavailable on Friday because of the briefings, Baker said.

The warning came just over a month after the company raised $36 million in new capital, to cover IPO costs and pay off debt, in its initial public offer, while existing shareholders, including chairman John Clifford and executive director James Docking, sold off $63 million worth of shares, and retained a 43 percent stake in the company. There was no public pool.

"It is disconcerting for a profit warning to happen so soon after listing," John Hawkins, chairman of the New Zealand Shareholders Association, adding that his board would discuss the situation at a meeting on Wednesday.

The company cut its forecasts because of "delayed go-live on a major project where a dispute has recently arisen between Gentrack and the customer on the payment for the extra effort required from Gentrack to complete the project, which Gentrack expects to be subject to mediation," it said in a statement on Friday. It also reflected "a delay in signing a substantial upgrade contract with an existing customer, which is still expected to be signed by the financial year end."

"Its very frustrating that this has happened and there is a research blackout still," said Matthew Goodson, managing director at Salt Funds Management, which took a small stake in Gentrack. "It's really quite unsatisfactory when a company is listed like this, it's trading and investors are really groping around in the dark."

Analysts were still getting their heads around the drivers of the business, but the company did have a strong market position, and dealing with large customers with "deep-pockets" could be difficult, and it didn't appear that this year's lost earnings would be recovered next year, he said. Gentrack hasn't named the client it was in dispute with, he said.

Gentrack said it will still pay dividends of $2.6 million in December.

Docking has run the Gentrack business since 1995. Gentrack has 150 utility and airport customers in 20 countries, and employs 180 people in offices in Auckland, Melbourne and London, according to its statement. Sales in the 12 months ended Sept. 31, 2013, were $40 million, generating a profit of $6.6 million.

Gentrack shares pared Friday's loss this morning, gaining 2.2 percent to $2.29.


Comments and questions

This company needs to front up and advise its shareholders what it knew about these problems when it floated its shares. The original shareholders have done very well from the sale of some of their shares but would not have done so well if there were problems and they were fully disclosed at the time when the float was being mooted. If there was not a full and frank disclosure when the company was floated then there has to be some repercussions on the part of the directors.

Can someone with the time please refer this to the FMA/NZX. It seems those bodies don't take the initiative, so maybe some journalist will need to do their job for them?

What a shambles. No wonder the majority of New Zealanders if looking at an investment consider property to be far safer than shares. Like many retail investors I bought shares in Gentrack thinking it was a good investment because they make profits and pay dividends unlike many other shares in the IT area. I am totally in shock and are disgusted at the attitude currently being shown by the shareholders and directors who made copious amounts of money from the float. Why do they need to be told this is now a public company. People have put hard earned money into the company and therefore have shown a lot of faith in the directors and shareholders who set the company up. The least they could do now is front up and give a full explanation of what has happened. It is not just their money at stake now. If they won't do that they need to give analysts full freedom to look at the companies financial records so those analysts can advise current shareholders whether they should stick with the company or sell their shares and look for a better investment. At this stage I feel inclined to sell and move to a company where directors know what their obligations are. Their primary obligation is to be fair to all shareholders not just themselves. A good example of that is the Abano directors who look after all shareholders not just the big boys.

Gordon - with the greatest respect, Gentrack is a good company, but it was self evident that they were grossly overvalued. Capital, like water, will find it's appropriate level, and it's just a shame that you and lots of others are underwater. For my part I think it's still overvalued by 60M.

It is imperative the relevant authorities get to the bottom of this quickly before we face another expensive FELTEX.