Craneware shares plummet 34% as sales in US stall
Keith Neilson: ‘confidence in the future’ (pic: Terry Murden)
Craneware, which develops software used in the US healthcare sector, has seen its shares plummet 34% after declaring that sales in the second half of the year have been lower than expected.
The Edinburgh-based group said it has continued to make progress on its long-term strategic aim to be active in all US Hospitals.
“However, whilst the group continues to sign new contracts with hospitals of all strata, the timing and quantity of sales closed in the second half of the year have been lower than anticipated, as the market processed these launches,” it said in a trading update for the year ending 30 June 2019.
“As a result, revenue growth for the 12 month period over the prior year is expected to be approximately 6% and adjusted EBITDA growth approximately 10%. As flagged at the time of the group’s interim results, capitalised R&D has increased.
“In the year this will be approximately $9m (FY18: $4.7m), reflecting the group’s ongoing commitment to new product development (both recently released products and further development for the future).
“The EBITDA figure has also been adjusted for one-off exceptional costs of approximately $1.5m relating to professional fees for a significant and well-advanced acquisition opportunity that the group decided not to pursue in the period. Renewal levels remain within our historic range and the group maintains healthy cash reserves.”
Craneware, which is quoted on the Alternative Investment Market (AIM) will announce results for the financial year ended 30 June on 3 September.
Keith Neilson, CEO, said: “As we close our financial year, we continue to look to the future with high levels of confidence despite our short-term sales performance in the latter part of the year. We have a significant and growing pipeline, which we are focused on converting.
“As a board we are convinced that our strategy with the Trisus platform differentiates us from other healthcare solutions vendors, providing substantial benefits for our customers and will meaningfully impact the value of healthcare as a whole. This, as we have demonstrated, will result in substantial improvements to the financial effectiveness of US Hospital Provider Customers and therefore significant financial wins for Craneware in the future.
“This strategy, our financial strength and high levels of revenue visibility for future years combine to give the board confidence in Craneware’s future.”
Shares in Craneware mid-afternoon were trading 1025p (35%) lower at 1925p.
Russ Mould, AJ Bell investment director, said the update “implies a marked deceleration in earnings growth after the double-digit increases generated over the past four or five years. Since 2010 sales have grown at 11% and adjusted EBITDA by 14% respectively, on a compound annual basis.
“That in turn might not be such a problem, were it not for how the stock’s valuation allows little leeway for such a stumble.
“At yesterday’s close, Craneware shares were trading at £29.40 and analysts were expecting earnings per share to rise by more than 20% to 61p, for a price/earnings ratio of 48 times – a huge premium to the wider UK market which trades on closer to 13 times forward earnings.
“Such a rating is all well and good if earnings momentum remains strong and estimates continue to rise, but it offers little protection of anything at all goes wrong – as today’s events attest.
“Craneware now needs to show that this second-half slowdown is just a blip, as it moves beyond selling its Chargemaster toolkit and broadens out its offering with Value Cycle.
“If it is just a blip, then today’s tumble could be a buying opportunity but the heavy fall today shows that even buying quality companies – and Craneware fits that bill with its strong market position, excellent growth track record, recurring revenue base and powerful cash generation – is not a guarantee of safety if investors overpay for such stocks.”