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Why shares of GBST Holdings Limited have tanked today

Shares of GBST Holdings Limited (ASX: GBT) are under the weather today. In fact, they were trading almost 22% lower approaching noon (Sydney time) at just $3.02, although they did drop to a low of $2.93 earlier.

The heavy fall can be attributed to an announcement made by the company to the market this morning. In short, the company gave investors a glimpse into what to expect when it reports its half-year earnings results on 14 February whilst also forecasting a weak six months during the second-half of financial year 2017.

The Update

GBST said it expects earnings before interest, tax, depreciation and amortisation (EBITDA) to be around $8 million for the first-half, which is still subject to finalisation of the accounts as well as an audit review. That in itself represents a 33% improvement on the prior corresponding period ($6 million) but still well below the $12.3 million in EBITDA it reported in FY15.

The company put this down to project delays and deferred spending related to major projects in the United Kingdom which happens to be GBST’s largest international market. It noted that (emphasis added) “while we secured a new Composer contract with an international client and UK recurring licence fee revenue has increased, services revenue will be impacted by a project that will not materialise and client deferral of other projects.”

As a result, full-year earnings will also be lower than expected. In fact, it expects to generate just $4 million in EBITDA between January and June, suggesting full-year EBITDA of $12 million. For comparison, it achieved $17.2 million EBITDA in FY16 and $24.5 million in FY15.

Pleasingly, the company does still have $12 million in cash and no debt (as at 31 December), and intends to continue to pay dividends. That shows that, despite its poor performance, it is still in a position that it can support itself.

That said, investors ought to be cautious investing in the business right now, in my opinion, based on its recent performance. While it could still make for a great long-term prospect, investors may want to stick to the sidelines, for now.

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Motley Fool contributor Ryan Newman 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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