Allenby Capital research note8 Feb 2021 10:20
Worth referencing the post-results Allenby Capital note from only two weeks ago, which forecasts a "conservative" £505k PBT to this September:
Http://www.allenbycapital.com/research_1132_696149988.pdf
Summary:
"A year of strong growth and sustainable profitability
REACT Group plc (REACT),the specialistsin deep cleaning services for customers in the public and private sectors, has announced encouraging full year results, marginally ahead of our increased forecasts and a significant turnaround from the losses reportedin previous years.
Cash balances at the year-end were also substantially higher than forecast at £1.8m. The new management team has delivered on its promises in what has been a challenging year and we continue to remain very positive on the prospects for the Group.We have introduced forecasts for FY2021 but at this stage,with so much uncertainty we have set our expectations prudently.
Nevertheless,the year has started strongly and our projections, supported by a high level of recurring revenueand margin improvement, still anticipates a more than doubling of EBITDA and could be raised as REACT progresses through the year.
–A year of promises delivered– Under its new management team,REACT has delivered a strong set of results for the year ended September 2020. Previous year losses have been turned around and a maiden profit reported,driven by strong trading across all three Group segments, Contract Maintenance(CM), Contract Reactive (CR) and Ad Hoc(AH), the latter including REACT’s COVID-19 decontamination work, which management has separated out and accounted for c.10% of revenue.......
–New management team reinvigorating the business and prospects- We would reiterate that historically, REACT had been held back by poor management and an almost complete lack of investment in sales and marketing and has therefore only scratched the surface of potential demand for its specialist services. REACT is still an early-stage company but these results give an indication of what the new team can deliver and our forecasts for 2021 reinforce this belief.
–A strong start to the year but forecasts are setprudently– Management reports that the Group has made a strong start to the year with profit and cash generation in Q1 ahead of the same period last year. That said, with so much uncertainty around we have pitched our forecasts for FY2021 at a conservative level and these will be reviewed as we progress through the year. Nevertheless, we still anticipate a reasonable level of revenue growth, (c.18%), a further modest improvement in gross margins and a relatively flat fixed cost base. All of which lead us to anticipate EBITDA moving up from £261k to £555k with solid cash generation being achieved. We look forward to another good year from REACT."
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