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Gentrack's Docking defends prospectus as FMA asks questions

Gentrack Group [NZX: GTK] chief executive James Docking says the company's prospectus was the result of thorough due diligence and expert advice, and the subsequent cut to guidance reflected the complex nature of its airport and utility software projects.

The shares last traded at $2.12, below the initial public offering price of $2.40 in June, having slumped on Aug. 1 when the company said it wouldn't meet its prospectus forecasts for 2014 sales and profit because of a payment dispute and a delay to a contract. The company said today the hold-ups, involving two large utility customers, became apparent only shortly before the Aug. 1 announcement.

"We spent a lot of money with advisers through due diligence," Docking told BusinessDesk. "The market hates uncertainty and that's the nature of it," he said of the sell off in the stock. "We do big, complex projects and they are notoriously difficult to forecast."

In the case of the delayed contract, Docking said he has "a strong belief we will get it signed soon." The payment dispute was following the terms set out in that contract, which lead to mediation, and related to clauses allowing the company to claim additional costs. As a result, revenue from the contract would be booked in the next financial year.

"It's a learning curve," he said of the way the shares were punished. "I regret we had to make the announcement" but the company had an obligation to go the market as soon as it became clear it wouldn't meet forecasts, he said.

Docking confirmed that the Financial Markets Authority has questioned the company over its disclosures, which it had expected would happen. He wasn't overly concerned about the regulator's interest.

The airport and utility software company's stock surged on their debut on the NZX on June 25 after an IPO in which shareholders including chairman John Clifford and Docking sold $63 million of existing shares along with $36 million of new capital used to repay debt and IPO costs. While the company immediately briefed analysts, executives avoided public comment until today's statement.

The company doesn't expect to have to drop its forecast dividend of $2.6 million to be paid in December or lower guidance for 2015 from its prospectus forecast.

(BusinessDesk)

Comments and questions
8

they should have done such explaination at the same time when they released the forecast.

I hope that Slater and Gordon come knocking on their door as a class action might put some compensation in shareholders pockets after this fiasco.

You realise, don't you, that companies are owned by their shareholders? So when companies pay compensation to shareholders it is effectively shareholders paying themselves plus paying legal costs... in net terms, the only winners are the lawyers.

That's only true if you are suing the company, whereas in this case any legal action would presumably be against the vending shareholders and the directors (who may be able to call on their D&O insurance policy). So a definite net gain to the plaintiffs if they were successful.

The FMA has been given many more powers than its predecessor (the Securities Commission) ever had at its disposal . It will be interesting to see if they do a decent job on investigating this debacle which has left a sour taste for investors and damaged the credibility of our market , at a time when others are queueing up with IPO's.

In my view Gentrack will recover the money it's owed, go on to sign the contract it had expected to have signed this year I early in the next year, pay its projected dividends this year and next, and see its shares rebound and grow in value towards $3, but it is also my view that the board handled the profit down grade situation badly and also too boldly predicted this years profit for its prospectus, thereby benefitting the selling shareholders, including the chairman and the CEO, thereby damaging their reputation and even their trustworthiness.

Don't think so. The earnings downgrade shows how vulnerable, volatile and lumpy Gentrack's incomes are. Remember Provenco? Highly profitable company but it could not secure enough ongoing contracts to meet its overheads built up to meet commitments to existing customers.

$3..!! Tui ad! The drop to date shows how vulnerable their NPAT is to drop in revenue. Remember they even predicated that their revenues would be flat....taking a hit on mediation removes some of the revenue they had expected that would deliver that flat revenue.

They clearly state (and I agree) they are not a growth stock, so "normal" EBITDA / Dividend valuation rules would apply.

I do think though that once they get past this, the fact they have around 25M in the bank and no debt, and at least breakeven, should give them some scope. They need a good news story now...