Why CSG Limited shares crashed 32% lower today

Whilst a vast majority of shares have dropped notably lower today, the CSG Limited (ASX: CSV) share price has been a stand out with a huge decline.

At lunch the print and business technology solutions provider’s shares are down a massive 32% to 29.5 cents. This means its shares have shed almost 81% of their value over the last two years.

Why are its shares lower today?

This morning CSG came out of its trading halt and provided the market with a trading update for FY 2018. As you might expect from the market reaction, it was not a good one.

According to the release, the company has revised its full-year guidance to revenue of $253 million to $260 million and underlying earnings before interest, tax, depreciation, and amortisation (EBITDA) of $18.5 million to $21 million.

This compares to its previous guidance of revenue of $269 million and underlying EBITDA of $30 million.

Management has blamed the downgrade on lower than expected print equipment sales which has been driven by changes to the salesforce and sales incentive programs designed to accelerate growth in the technology business.

Which is showing progress, thankfully. Management advised that its technology business continues to grow and has seen subscription revenue increase by approximately 39% and technology equipment increase by approximately 50% compared to the prior corresponding period.

However, this hasn’t been anywhere near enough to offset declines in its printing business and below expectation sales from its Enterprise Solutions business.

One positive, however, is that the company has appointed Credit Suisse to assist in reviewing strategic options which are available to maximise value for shareholders. I suspect the company may look to offload some of its underperforming assets.

Should you invest?

Whilst its shares do look cheap after this decline, I would caution investors off an investment. The company has been going backwards for some time now and there’s no guarantee that this strategic review will turn things around.

As a result, I think investors would be better off considering one of its information technology peers such as Nextdc Ltd (ASX: NXT), Hansen Technologies Limited (ASX: HSN), or Altium Limited (ASX: ALU) instead.

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Motley Fool contributor James Mickleboro owns shares of NEXTDC Limited. The Motley Fool Australia owns shares of Altium and Hansen Technologies. 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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