The Scottish Pacific Group Ltd (ASX: SCO) share price plunged 27.3% to $2.69 today after releasing a downgrade to its forecast profit for the 2017 financial year (FY17).
The company said in an announcement to the ASX:
"The Company advises that it has experienced lower than expected levels of borrowing during the first four months of FY17, predominantly among some of its larger clients, who are borrowing less than expected. As a result, this has impacted gross income and hence Net Revenue is below expectations at this point in the Company's financial year."
Revenues are expected to fall by $8.2 million (7.5%).
As a result, the financial service provider – which mainly provides debtor financing to small-to-medium companies (SMEs) – says it expects to produce pro forma profit before interest and tax (PBIT) of $40.7 million and pro forma net profit (NPATA) of $30.8 million for FY17.
In the company's prospectus, Scottish Pacific had forecast PBIT of $44.9 million and NPATA of $31.8 million.
It's yet another downgrade by a private equity float – which is one reason why the small downgrade to earnings and profit has seen a savage reaction from the market. It's also another disappointing IPO, with shares issued at $3.20 in July this year.
And it raises questions about the quality of IPO forecasts.
Dick Smith Holdings, Spotless Group Holdings Ltd (ASX: SPO), Healthscope Ltd (ASX: HSO) and Estia Health Ltd (ASX: EHE) are all private equity offerings that ran into issues with forecasts.
Dick Smith eventually fell into administration amidst accusations of accounting trickery, after being bought for a song by private equity and then tarted up and listed on the ASX for multiples of the purchase price.
No wonder many investors are steering clear of private equity floats – and even IPOs – today. Some floats have either had to be repriced or have been postponed until next year.
