Collins Stewart has downgraded Leadcom Integrated Solutions Ltd. (AIM: LEAD) to "Market perform" with a target price of ₤0.47. The investment house says, "We believe risks outweigh the compelling valuation in the near-term."
Leadcom closed at ₤0.435 yesterday, giving a market cap of ₤51 million. The share fell over 3% by mid-day today.
Collins Stewart cites Leadcom's $19 million cash shortfall, further fluctuations in currency, extended sales cycles with service providers, effects of cancelling the company’s largest customer relationship, and integration of its Ytelcom acquisition.
> Collins Stewart noted that Leadcom posted a loss of $725,000 on $65.1 million revenue for the third quarter. The company's position was hurt by unexpected financial expenses, including an increase on its financing costs associated with its debt and exchange rate changes due to the weakening dollar versus the shekel. The company also lost its largest customer in Latin America because of poor profitability and difficulties in the working relationship in the region. Although, Leadcom is continuing projects for this customer in Europe, India, and elsewhere, 40% of the company's revenue in Latin America came from this customer.
Finally, Collins Stewart notes that Leadcom cut its revenue guidance for 2008 to $280 million, less than the investment house's already reduced forecast of $285 million. Collins Stewart therefore cut its 2007 forecast for the company to $0.09 earnings per share (EPS) on $208 million revenue, down from $ $0.10 EPS on $224 million revenue. It also cut the 2008 forecast to $0.12 EPS on $280 million revenue from $0.14 EPS on $285 million. Only a week earlier, the investment house had forecast $0.18 EPS on $310 million. It predicts that Ytelcom, acquired in July, will contribute $70 million revenue to Leadcom in 2008.
Published by Globes [online], Israel business news - www.globes-online.com - on November 8, 2007
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