Profit warning, but downside limited by cash pile3 Apr 2024 08:47
Incredible that revenues could be down on forecasts by such a huge amount. Cavendish were evidently totally blindsided by over-optimistic guidance from the company.
Cavendish, who now have a 78p target price, have reset forecasts for the coming year to £27.6m revenues, 2.4p EPS and a £6.8m closing cash pile at March '25 (against the current £10.35m m/cap).
The cash/asset backing to a supposedly profitable cyber-security business was the reason I invested here, so at least the downside remains well protected, but SWG have a lot of work to do to deliver potentially substantial upside from here.
I would rather Cavendish had underpromised further and forecast say £25m revenues, as overdelivering is always the way to go. Anyway, they conclude today:
"Valuation and conclusion: Shearwater Group is a company with a unique and differentiated set of capabilities in critical cyber security applications, and a global blue chip customer base. The company has a strong balance sheet and a track record of strong historic profitability and strong cashflow, together with a resumption of positive cash generation delivered during FY24. The current share price corresponds to an EV/Sales ratio of 0.2x. We are reducing our own target
EV/Sales to reflect the slower recovery trajectory, but we argue that a new target of 0.5x is justified based on the medium-term potential. This corresponds to a new price target of 78.0p."