Shares in struggling financial services company Tungsten (LSE: TUNG) slumped by as much as 10% in early trade this morning, after the company reported a wider than expected loss for the six months ended 31 October 2015.
However, at time of writing Tungstens shares had recovered some of their early losses after the group announced that it had reached an agreement to sellTungsten Bank for approximately 30m in cash, following a previously announced strategic review.The consideration represents net assets of 25.4m plus a premium.
Commenting on the disposal,Richard M. Hurwitz, Chief Executive Officer said:
We have undertaken a thorough self-assessment of all aspects of our business, which has given us great clarity on the strategic outcomes we desire and the paths we will take to achieve them The management team can now concentrate on Tungstens core businesses as we look to create the worlds most trusted business transaction network.
Butwhile the sale of Tungstens controversial banking division is relatively good news, Tungstens figures for the six months to the end of Octoberare hardly anything to get excited about.
Losses growing
For the reported period, Tungstens revenue rose 28% to 13.1m and the groups earnings before interest, tax, depreciation and amortisation improvedby 3.7m to 9.5m. However, the groups loss after tax rose to 17.6m, compared to 14.7m reported a year ago.
Group net cash and cash equivalents were 39.7m atthe end of October, although its unclear how much of this cash belonged to Tungsten Bank. Based on the fact that the banks net assets are valued at 25.4m, its possible that a high percentage of the cash held by the Tungsten group will disappear when the bank is sold.
Nonetheless, its clear from Tungstens half-year report that the company is making progress, although whether its being madefast enough to prevent another cash call remains to be seen. The company boasts that during the period it signed nearly 500 new integrated supplier customers, worth 0.5m in first-year revenues, and a further 13,000 web form suppliers.
Also, during the six months to the end of October, the group saw a10% increase in e-Invoice volumes to 7.5m with a 14% increase in e-Invoice value to 55.9bn. Total invoice volume growth was 8%. Whats more, during the period the company was able to negotiate, renewals with 14 buyer customers to deliver future price increases averaging 70% as customers recognise the increasing value they derive from Tungsten.
Time will tell
So, Tungstens key performance indicators seem to be heading in the right direction, but City analysts dont expect Tungsten to report a profit anytime soon, heightening the risk that the company will have to ask shareholders for more cash to continue operations.
Analysts expect Tungsten to report a pre-tax loss of 18.3m for the year ending 30/04/2016 and a further loss of 5.3m for the financial period ending 30/04/2017. If all goes to plan, Tungsten is on track to report a profit for the year ending 30/04/2018.
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Rupert Hargreaves has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors.