The Speedcast International Ltd (ASX: SDA) share price has plunged an incredible 40.8% in one day on the ASX to just $2.06 per share after the company updated its earnings guidance for 1H 2019 and FY 2019.
What was so bad about the guidance?
The horror day for Speedcast investors started with this morning's update regarding the company's expectations for 1H 2019 and FY 2019 underlying earnings before interest, tax, depreciation and amortisation (EBITDA).
Speedcast announced that it expects underlying EBITDA for 1H 2019 of approximately US$60 million to US$64 million, including US$8 million to US$10 million from its Globecomm acquisition which was completed in December 2018.
The company reported its expectations have changed since its May 2019 annual general meeting due to "evolving market conditions and more recent commercial developments".
Some of the key factors impacting 1H 2019 earnings identified by management include:
- Weaker market conditions in EEM as well as the slower implementation of the existing backlog
- Delays to some expected revenue under Phase 2 of the NBN project
- Increased churn from a major Commercial Maritime contract, highlighted during full-year results
- Continued technical difficulties causing further delays in the ramp-up of its Carnival contract
- Lower revenue expected in Energy due to the timing of systems integration revenue being delayed until at least the second half of the year and maybe into 2020
What about full-year expectations for the company?
While investors are never pleased about lower guidance, the double-whammy of 2 concurrent guidance revisions seems to have sent some major money out the door from Speedcast.
The company announced it expected underlying EBITDA to be approximately US$20 million lower than previously anticipated, with underlying EBITDA for FY 2019 coming in at US$140 million to US$150 million.
Excluding the impact of lower underlying EBITDA from Globecomm, the company also noted modest growth in Maritime, lower than expected revenue growth in EEM and lower government revenue growth going forward.
How did the Speedcast share price plunge 39% in one day?
Even with the disappointing news for Speedcast, a share price move of 40% is rare – especially for a company that doesn't appear to be in immediate distress.
The Speedcast share price has plummeted from $3.49 to $2.06 at market close and the stock even managed to hit a new 52-week low of just $2.04 per share.
This valuation remains a long way from the company's 52-week high of $6.83 in August last year, meaning the stock has managed to plunge almost 70% in the space of 12 months from high to low.
I don't think the update is necessarily all that bad despite the lower growth forecasts and could represent a cheap buying opportunity for those Fools game enough to roll the dice.
