Yahoo Finance It was a mistake to ever buy this stock – but is it a mistake to sell now?
When we wrote last month about Fulcrum Utility Services, we said in essence that things wouldn’t get any worse and the shares, at 6.3p, were too cheap because investors had given up on them. How wrong we were.
First came the news of a cyberattack, which knocked 4.4pc off the share price. Then a profits warning on Monday caused the shares to lose 36pc. They now stand at just 3.8p, a far cry from the 45.35p at which we added them to our IHT Portfolio in January 2019.
We wrote last month that the company had a new strategy that struck us as sensible, and that it all now came down to execution. Fulcrum acknowledged as much this week.
While the cyberattack delayed some invoicing and cut managers off from information for a period, the real damage is being done by cost inflation and what the company called “ongoing challenges with the legacy and closure of historic projects”, which this column imagines to be a reference to its smart meter business.
It added: “While the new executive team’s continuing priority is to protect and improve margins and refocus the group on its core utility infrastructure and asset ownership growth strategy, the group’s challenges are historic in origin, have been long standing and are widespread. As such, the benefits of the business improvements introduced to date, and currently under way, are taking longer than anticipated to realise.”
The consequence is that Fulcrum now expects sales for the full year to be about £49m, compared with £61.8m last time, and losses on the “adjusted Ebitda” measure to be about £6m, against a profit on the same basis of £500,000 last year.
More ominously it said that, partly as a result of the billing delays, it had net cash at the end of last month of £4.8m, less than half the £11.2m it had at the end of March, and that it was “in discussions with its substantial shareholders to ensure that the group remains adequately funded”.
As we reported last time, one of the company’s non-executive directors, Jonathan Turner, owns almost 30pc of Fulcrum’s shares. The danger is that shareholders stump up cash in exchange for discounted new shares, which would dilute those investors who don’t take part.
To state the obvious, it was a mistake to recommend this stock. However, the right time to sell was long ago and there is little point doing so now.
Questor says: hold
Ticker: FCRM
Share price at close: 3.8p
New holding: Somero Enterprises
In July we tipped this American-based but Aim-quoted company, which makes precision machines for laying floors and roadways, for the broader readership.
Adam Rackley, of Cape Wrath Capital, who put us on to the stock, says he expects the shares to qualify for “business relief” and hence be free of inheritance tax liability if held for two years.
“As a ‘normal’ operating company with a single quotation on Aim, my understanding is that the stock would qualify,” he says. He adds that last month’s interim results were in line with expectations and “the outlook remains positive”.
The company said the US non-residential construction market “remains healthy, with extended customer project backlogs” and there were “opportunities for growth in our international markets and from new products”.
We'll now add the stock to our IHT Portfolio.
Questor says: buy
Ticker: SOM
Share price at close: 382.5p
Update: Tracsis
This software company has never belonged to our IHT Portfolio but, in case any readers own it in the hope that it qualifies for business relief, we are passing on the opinion of an experienced Aim investor that it may not meet the conditions in full.
“We have concerns over its qualifying status because of the high level of relatively static cash it has on its balance sheet,” says Chris Boxall of Fundamental Asset Management.
Companies qualify for IHT relief only if they are substantially “operating” businesses as opposed to vehicles for holding investments. HMRC could decide that a consistently high cash balance counts as an investment and that the shares do not therefore qualify for full relief.
“It’s the sort of stock that, if HMRC decided to take a close look at it, it might reduce the potential relief,” says Boxall. “This is unlikely, but you never know.”
Avoid for IHT purposes.
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