A ‘testing’ year at Paragon Entertainment (PEL:AIM) has resulted in the visitor attraction design company breaching its banking covenant and its chief financial officer quitting. With the shares down just 4% to 1.8p, the market has clearly been anticipating grim news, as the one year chart below shows.

Paragon, which is involved in the design, production and operation of themed attractions like the Wallace and Gromit ride at Blackpool Pleasure Beach, made a pre-tax loss of £427,000 in 2014 compared with a loss of £112,000 a year earlier.

The group says it had a strong pipeline in its core ‘design and build’ division at the start of 2014 but faced a number of unexpected project delays.

PARAGON ENTERTAINMENT - Comparison Line Chart (Rebased to first)

This resulted in an EBITDA (earnings before interest, tax, depreciation and amortisation) loss of £0.1 million, causing it to breach its banking covenant with HSBC. Its chief financial officer Richard Arden is leaving the company on 31 July.

Paragon joined the AIM market in December 2011 and initially looked promising, with full-year results for 2013 showing an almost doubling of underlying EBITDA and a 64% increase in revenue to £10 million. But in June and September last year it warned that contract delays would significantly impact its expectations for 2014.

The group also had to sell its flagship adventure playground attraction at Quest in Westfield Merry Hill due to underperformance.

The future for its design and build business is looking fairly promising, with confirmed orders of over £15 million to the end of 2016, but it faces an enormous task in improving its long-term funding position and convincing investors its business model is sound.

House broker FinnCap reckons the shares could grow by 67% to 3p.

Issue Date: 24 Jun 2015