Gentrack shares drop 12% on profit warning

Gentrack CEO Ian Black. Photo / Supplied

Gentrack shares dropped 12 per cent after the company said it expects annual earnings will fall by as much as 13 per cent due to delays in customer projects and bad debt risks in the UK.

The utilities software developer said annual earnings before interest, tax, depreciation and amortisation will probably be $27-$28 million in the 12 months ending September 30, down from $31m in the prior year. Gentrack had previously predicted annual earnings would be "marginally ahead" of the 2018 result.

"The delays relate primarily to customer resourcing and do not indicate that the projects concerned are at risk," the company said in a statement.

"We note the ongoing dependency on the timing of key contracts and project milestones and confirm that there is a strong pipeline of opportunities in our utilities and airports markets which support our long-term growth objective."

The shares fell as low as $5.06, and were recent down 73 cents at $5.22, taking it back to early June levels.

Greg Smith, head of research at Fat Prophets, said the reaction wasn't surprising and was effectively another strike in the market's eyes after a weak first-half result.

"It is a 13 per cent miss at the bottom end versus previous guidance, and at 30 times FY20 earnings the stock will always be vulnerable to disappointments," Smith said.

"There may also be a concern that project/contract 'Delays' may prove euphemistic and more permanent in nature, or that risks in the UK are on the rise, with the economy there a hot topic given Brexit."

In May, Gentrack reported a 19 per cent decline in first-half ebitda to $12.8m, even as revenue increased 5 per cent to $54.4m. At the time, the company said revenue growth was slowing as it generated more software-as-a-service sales, and as some customer projects were deferred.

The company reported a first-half loss of $8.7m after writing off the carrying value of airport software developer CA Plus, which it bought in 2017.

As at March 31, Gentrack reported $32.1 million of receivables, of which $18.3m was from trade debtors and $11.9m from contract assets. At the time, it provided for $679,000 of impairments and $137,000 for warranty claims.

Gentrack didn't provide a bottom-line profit forecast.