entu (UK) plc (LON:ENTU) as previously guided in its trading update on 14 June, H1 results have been adversely impacted by operational and supply chain issues in the core Home Improvement’s business, resulting in reduced installations during the peak seasonal trading months of March and April. An unaudited EBITDA loss of £2.3m announced today is in line with revised guidance. Management have taken positive action to address current challenges; operational improvements introduced in recent months are yielding results and a further restructuring exercise implemented in July has identified £0.8m in annualised savings. Alongside this, the senior leadership team has been strengthened with the addition of several experienced interim managers. A strategic review of the business is underway, with KMPG engaged to consider various debt and equity finance options as well as potential interest in certain parts of the business. At current levels Entu trades on an FY18 PER of 4.1x and EV/EBITDA of 3.7x.
Supply constraints impact performance: Group revenue for the six months to 30 April of £36.5m is down 13.4% YOY. As previously announced, this decline was driven by operational constraints in the Group’s core Home Improvements division, where a significant loss of fit capacity in peak trading months of March and April resulted in a 15.8% fall in sales to £32.9m. The decline impacted Group gross margin, down 530bps YOY to 27.4% and resulted in the division reporting an adjusted operating loss of £3.4m in H1. Repairs and Renewals Service Agreements was stable with revenues flat YOY at £1.3m and operating profit marginally lower at £0.9m. In the Energy Generation and Saving division, revenues were +28.1% to £2.3m due to demand for LED installations, resulting in an operating profit of £0.2m in H1, this division along with other commercial revenue streams will be scaled back going forward, to focus resources on the core Home Improvements business.
Strategic Review: On the 6th July, the Group announced it had engaged KPMG to assist with a strategic review of the business, aimed at securing new long-term financing to strengthen its financial position. Options considered include new debt funding and debt and equity structures as well as potential interest in certain parts of the business. Alongside the review, additional restructuring has been implemented this month, expected to result in £0.8m of annualised costs savings; Entu has appointed several experienced interim managers tasked with driving efficiency savings and working capital improvements across the Group.
Forecasts: We revised down our forecasts at entu (UK) plc trading update on 14 June and leave our numbers unchanged today. Management continue to expect an EBITDA loss of £1.2m-£2.2m in FY17, with our forecast EBITDA loss of £1.7m at the midpoint of this range.
Valuation: Ongoing restructuring combined with the losses expected in the coming year make it difficult to put a short-term valuation on the business, however, should the Group’s recovery be executed to plan the FY18 valuation could becoming more compelling. Entu trades on 4.1x FY18 earnings and an EV/EBITDA of 3.7x.
