Gentrack's earnings decline
Recommendation
Gentrack's share price has fallen 9% after the company lowered its guidance for 2019 earnings. Management of the billing software maker previously expected underlying earnings before interest, tax, depreciation and amortisation (EBITDA) to be slightly ahead of last year's NZ$31m; it now believes Gentrack will earn NZ$27-28m, some 11% lower than last year.
Management said the decrease is due to project delays and bad debts in the UK, but that 'the delays relate primarily to customer resourcing and do not indicate that the projects concerned are at risk.' It's worth remembering that Gentrack typically deals in large contracts, the timing of which will affect results in any given year. We expect a little contract volatility, and the current news doesn't affect our long-term valuation. With an underlying forward price-earnings ratio of around 32, we're sticking with HOLD.
Note: With several substantial shareholders, Gentrack's stock is illiquid with a large spread between the bid and offer prices. To ensure you aren't caught overpaying, it's important your buy and sell orders have a limit price and are not made 'At Market'.