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Why this small cap ASX tech share could sink lower today

The Gentrack Group Ltd (ASX: GTK) share price could come under pressure today after the provider of software solutions for utilities and airports downgraded its guidance for FY 2019 for the second time in as many months.

Its New Zealand listed shares are currently trading 4.5% lower in early trade, which is likely to mean a similar sharp decline at the open for its ASX listed shares.

What happened?

At the end of July the company advised that its performance had been impacted by delays in customer projects and contracts. Management revealed that these delays related primarily to customer resourcing and were not an indication that the projects concerned were at risk.

In light of these delays and bad debt risks in the UK, the company downgraded its EBITDA guidance for the 12 months ending September 30 to be within a range of between NZ$27 million and NZ$28 million.

This was a decrease from its previous guidance of a full year FY 2019 EBITDA result marginally ahead of FY 2018’s NZ$31 million.

What now?

Unfortunately, trading conditions have continued to deteriorate since its last update, leading to a further downgrade to its EBITDA expectations.

Management now expects its full year FY 2019 EBITDA result to be within a range of between NZ$25 million and NZ$26 million.

It advised that the downgrade was “due to increased bad and doubtful debt provisions in relation to the UK Utilities market, which has seen further deterioration over the last quarter. Uncertainty in the UK Utilities market increased with the regulatory imposition of price capping for retailers in January 2019, a key factor in the failure of 9 retailers and continuing market restructuring.”

Management will release its full year results for the 12 months to September 30 in just under two months on November 28.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has recommended GENTRACK FPO NZ. 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 Scott Phillips.

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