Its barely three months since a cash shortfall announced as part of its Q3 update sent shares inBlancco Technology Group (LSE: BLTG) crashing by 25%.
At the time, thedata security firm which specialises in data erasure and computer reuse, said a number of factors (including the slippage of some big contracts) had put pressure on its cash position net debt was revised to 5.5m, and the company reckoned it needed 4m over the coming weeks to prop up its working capital. A placing which raisedapproximately 9.45mwas the result.
Then on Thursday we had another trading update, revealing a further hole in Blanccos finances. That led to a 20% crash, and as I write the shares are at 118.5p.
This timewe hear that cash flow and net cash are below market expectations due to the non-payment of 3.5m of receivables, the majority undertaken in the prior year. Thats ledto a charge of 2.2m.
An awakening
The company has apparently had a bit of a lightbulb moment,speaking of the groups intention to apply a more prudent approach to revenue and income recognition on this type of contract in the future.
So, wait a minute its not until the fan gets heavily soiled that a company with prior cash flow problems realises that being prudent whenrecognising revenuemight actually be a good idea?
At this stage I was going to look at Blanccos fundamentals, but that would be pointless right now when Im shocked by itsapparent inability to see cash flow problems promptly.
A companythat suddenly realises it needs urgent cash within weeks to keep going, and still doest recognise the inadequacy of its income recognition policyuntil several months later well, thats not a companyto which I would trust a penny of my investment cash, whatever the ratios say.
Losing the game?
Todays antics from Blancco reminded me of that other spectacular recent fall, Game Digital (LSE: GMD). Games shares had been sliding for months when a trading update on 30 June sent them over a cliff a 67% crash over the past 12 months to todays 19.5p.
Games fundamentals actually look decent, with forecasts suggesting a P/E as low as 6.6 for the year ending July 2017 although thats a year in which earnings per share are expected to plummet by 80%. The forecast dividend of 1.3p would provide a yield of 6.2%, but in the light of its slashing from 14.7p to 3.4p in in 2016, its not something Im going to put much faith in.
Even a mooted 55% EPS recovery in 2018 does not attract me to the shares, and Ill tell you why.
Dying business
The problem I see is that the retailing of binary digits through actual bricks and mortar stores looks to be an increasingly bad idea the same way online distribution of music has killed many a retailer of CDs (or record shops as I still like to think of them).
My ISP has just upped my broadband to a nominal 150Mbps (and unlike many, it actually worksout better than that testing it showed 164Mbps). Why would I want to go all the way to a shop to buy a physical plastic thing when I can have massive digital contentdownloaded in minutes?
These two shares are beyondthe end of my bargepole.
Recovering growth shares can make you rich
Even if I don’t like these two, there are plenty of alternativegrowth candidates out there, and the tempting pick uncovered in ourTop Growth Share From The Motley Fool report has been raking in the cashfor years.
The pastfive years have brought indouble-digit annual earnings growth, and the City’s experts are predicting two more years of solid growth ahead of us. On top of that,a progressive dividend policy adds an extra attraction to the mix.
What to know more? Just click here right now for your personal copy, and itwill be despatched across the wires direct toyour email inbox, completely free of charge.
