The Manchester-headquartered home improvements minnow primarily blames the additional costs of managing an exit from the solar business for a latest round of earnings downgrades.
Shares highlighted the attractions of Entu, which installs energy efficient products for UK homeowners and businesses, as a turnaround situation in February. We flagged up the company's income attractions and status as a play on rising long-term demand for household energy efficiencies.
Naturally, we're disappointed with today's interims results, which contain a profit warning and a savage cut in the dividend, rebased for the second time since Entu floated on AIM in October 2014.
The solar business was closed in September last year in reaction to a 90% government cut in the feed-in tariff in. Yet Entu now warns around £3.5 million of overheads previously charged to the discontinued solar business will be absorbed by its continuing Home Improvements and Energy Generation and Saving divisions this year, meaning the 'full year outturn will be below market expectations'.
Accordingly, Zeus Capital slashes its pre-tax profit estimate for the year to October from £7.5 million to just £3.8 million and downgrades its October 2017 PBT forecast from £8.1 million to £6.8 million.
A further factor behind the downgrades is the fact new revenue streams failed to materialise in the first half. With management distracted by restructuring initiatives, growth from the Energy Generation and Saving arm was slower than hoped for. Acquisitions were also put on the back burner in order to focus on the core window and door and insulation businesses, which did perform solidly in tough markets.
As CEO Ian Blackhurst (pictured below) explains: 'Our Home Improvements Division performed well overall in the first half. We made the right decision in exiting the Solar business last year after the Government reduced feed-in-tariffs, but managing the exit took more management time and cost than we had hoped. This affected results in the first quarter, but we recovered with our strongest ever sales performance in second quarter.'
Entu closed the half with £2.3 million cash in the coffers, down from £2.7 million year-on-year due to the costs of the solar exit and the weighting of new orders towards the second quarter, though it insists cash flow will improve as it works through the order book.
Unfortunately, given the interim profits slump and 'the distributable reserves available', Entu slashes the interim dividend from 2.67p to 0.5p and Zeus now assumes a total dividend of 1.5p for the year, down from previous expectations of a 5.3p payout.