Investors are taking profits in entertainment marketing micro-cap Reach4Entertainment (R4E:AIM) despite the company revealing it has finally strengthened its balance sheet, with net debt down to £5.6 million from £13.6 million a year ago.
Shares in the £12.5 million cap have surged this month, but drop 9.5% to 2.4p on full year results that show a 31% reduction in adjusted EBITDA (earnings before interest, tax, depreciation and amortisation) to £1.8 million in 2015.
This is due to 2014 being an exceptional year for its New York-based SpotCo subsidiary, which it didn’t manage to replicate last year, as well as additional staff costs.
Revenue is up 3.1% to £85.9 million and the group has swung to a pre-tax profit of £4.5 million after making an exceptional gain from a debt write-off.
‘Now that the restructuring of our debt is complete, I am confident that the company has a solid platform from which to progress in the coming years,’ says Reach4Entertainment’s executive chairman David Stoller.
The stock has soared 45% since January, when we wrote about the group’s organic and acquisitive growth potential.
Last year management time was taken up with the refinancing of its debt facility, which has brought to conclusion an extended period of time when its ability to grow was severely comprised by onerous interest payments.
‘Free of the previous onerous interest payments, R4E is now sufficiently financially flexible and cash generative to initiate a growth strategy designed to leverage the group’s undoubted skills and to exploit the many opportunities for expansion that have been identified by management,’ says house broker Allenby Capital.
Opportunities include expanding into digital media and social media, and expanding into the business-to-consumer market through the development of Stage17, in which it holds a 17% shareholding.