Shares in independent utility supplier Yu Group (YU:AIM) surged 22% to 137.5p after the company said it anticipates 2019 revenues ahead of forecasts.

In a trading update the company, which supplies gas and electricity services to businesses, revealed that it expects to post revenue of approximately £110m. That would be roughly 36% up on 2018's £80.6m and 6% ahead of consensus estimates, according to Refinitiv.

Earnings before interest, tax, depreciation and amortisation (EBITDA) are expected to be in line with consensus expectations, which calls for £4.5m loss. This would imply a sound improvement on the £2.7m EBITDA loss reported in the first half, reflecting management action designed to clear previous issues and put the company on a clear path to profitability.

ACCOUNTING SHOCK

Achieving top-line growth was never the issue for Yu Group but analysts and investors wrongly assumed that many contracts were profitable. This turned out not to be the case, as outlined in a bolt from the blue statement in October 2018.

It confirmed massive miscalculations on previous accrued income, trade debtors and gross margins after an internal probe. That sparked a collapse in the share price, which crashed 82% to 107.5p. The stock had previously traded as high as £13.45.

BOOKINGS/MARGINS BETTER

The firm expects a ‘material improvement’ to EBITDA for 2020 with high gross margins being delivered.

Monthly bookings have improved from £3.2m in the first half to £5.1m in the second and the upward momentum is expected to continue into the current financial year. Contracted revenue stood at £79.5m at the year-end.

House broker Shore Capital will revisit its earnings forecasts after the full year results are released on 31 March 2020. The broker expects Yu Group to return to profit later in 2020 with ‘positive free cash flow coming ahead of this’.

READ MORE ABOUT YU GROUP HERE

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Issue Date: 28 Jan 2020