Why SMS Management & Technology Limited shares are getting shredded today

Earnings season has seen a number of information technology solutions providers reporting their results to the market. Most recently both RXP Services Ltd (ASX: RXP) and Data#3 Limited (ASX: DTL) delivered bumper profit growth, leading many to presume that the trend was going to spread industry-wide.

In light of this other companies in the industry such as Melbourne IT Limited (ASX: MLB) have climbed higher in anticipation of bumper results of their own.

SMS Management & Technology Limited (ASX: SMX) was another one. Prior to today its share price had risen almost 30% since the start of August. But unfortunately for these investors, SMS Management & Technology failed to live up to its peers and its share price is down 9% today as a result.

This morning the company released its full year results and they didn’t make for pleasant reading. The company reported an 8% year on year drop in revenue to $328.7 million and a massive 43% plunge in net profit after tax to $9.7 million.

The sudden and unexpected loss of a large client transformation project at the start of the financial year was undoubtedly a big blow to the company and led to its SMS Consulting division posting a 14% drop in revenue to $234.4 million.

Its M&T Resources division performed admirably well though. But being a much smaller division and contributing just under 29% of total sales, its 11% lift in revenue to $94.3 million was never going to be able to offset the poor performance of the SMS Consulting division unfortunately.

Earnings per share were down to 14 cents from 24.1 cents in FY 2015, and the company cut its full year dividend from 17 cents per share to just 9.5 cents per share. At the current trading price this equates to a PE ratio of 14 and a fully franked 4.7% dividend.

Considering management has not advised of an improvement in trading conditions so far in FY 2017, I am pessimistic that a turnaround of fortunes is forthcoming. For this reason I would stay away from SMS Management & Technology at least until the company provides its next trading update at its Annual General Meeting on 14 November 2016.

In the meantime I would turn my attention to RXP Services, which I still feel is good value despite the post-results rise in its share price.

Instead of investing $10K in SMS Management & Technology, I would highly recommend reading how this man turned that $10k investment into over $8 million. Stunning!

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Motley Fool contributor James Mickleboro has no position in any stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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