entu (UK) PLC is a company that markets 'energy efficiency' products. It sells heating boilers, double glazing and solar products. It was floated on AIM in October 2014 with a market cap of £65.6m with shares valued at £1.00 each. The company had produced accounts for the previous years prior to floatation showing increasing turnover and increasing profits and made claims that it was going to pay a future dividend of 8%.
Simon Thompson in the Investors Chronicle wrote an article about the company published on 10 November 2014 analysing the figures and suggesting that the share would make a decent income buy. One of the strengths highlighted by Simon Thompson was that the company merely sold the products and did not manufacture any of them and therefore did not require much capital expenditure.
I researched the stock, believed the published figures, and I purchased shares on 7 April 2015 at £1.365. At the end of May the company announced the appointment of a new CFO. The half year results were due to be released on 22 July 2015.
The half year results were published two days earlier than previously advised on 20 July due to the market volatility of the shares. These results showed a 31% drop in profit and an interim dividend of 2.7p per share. The loss was blamed on a change in VAT rulings by the EU and seasonality (I would have expected more boilers to have been sold in the winter months than the summer months). In addition to these disappointing results the management failed to attend a scheduled shareholders / analysts meeting. The IC maintained their BUY rating.
A profit warning was issued six weeks later on 1 September 2015 advising that things had not been going well for the previous six months and the company was going to reduce the previously highlighted 8% dividend. This caused the share price to drop by about 40% to 62p. Following the announcement the IC advised that now was not the time to crystallise the loss and amended their previous rating to HOLD.
The total dividend paid for the year was 5.3p. The shares continue to trade and on 29th June 2017 they are priced at around 16.75p each.
- Companies on AIM are significantly more risky due to the lack of regulation.
- Be careful when a company is an IPO - Take note on who brought the company to market and why they are offloading it rather than continue to hold it themselves.
- Do not believe financial figures over a short term period and most importantly do not believe the jam tomorrow story (in this case a very high future dividend). Everyone can talk a good game!
- Use a strict stop loss on unproven investments.
- Pay attention to share price movements - Future news announcements do leak out, there is insider trading and shareholders will flee sinking ships.
- Even 'experts' get things wrong.
- Do your own research, be sceptical and manage your risk.
- Don't lose money.
Many thanks for taking the time to read this.