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Entu (UK) plc

Entu (UK) plc Supply constraints impact performance

Entu (UK) plc (LON:ENTU) has announced a trading update this morning, with H1 performance held back by supply chain problems and fit capacity constraints, while intense competition in its non-core boilers and energy-switching businesses has resulted in the decision to discontinue these operations. Tighter market conditions have also meant the postponement of planned reductions to customer discounting and the Group now expects to report an underlying LBITDA of c£2.0m for H1. The Group remains committed to executing the action plan outlined alongside preliminary results in March and has appointed an external consultant to accelerate its implementation. We have cut our forecasts to reflect revised expectations, Entu now trades on 9.7x FY18 PER.

* Fit capacity constraints have impacted sales. Operational and supply chain issues identified at the year-end have proven more complex and far reaching than previously anticipated, impacting fit capacity in late March and April with the Group unable to service higher seasonal demand in these months. Management do not believe that driving capacity higher in H2 in an attempt to recover the c.£0.7m of lost contribution would be constructive given the Groups ongoing supply chain issues, and as such installations will be maintained at current levels to protect customer service levels and the brand until these issues have been resolved.
* The Group is focusing resources on the core Home Improvements business, scaling back its LED business and discontinuing the non-core boilers and energy-switching businesses where intense competition has impacted the profitability of these operations, with a loss of c£0.2m realised in H1. The Group has also postponed its plans to reduce the level of customer discounts it offers, to remain competitive in a more challenging market.
* An external consultant has been appointed to help refocus the business. A senior consultant with significant transformation and turnaround experience has been appointed to accelerate implementation of the Group’s planned restructuring. Management remain committed to executing the operational priorities outlined in March, focused on driving efficiencies, leveraging the supply chain and strengthening controls to drive cost savings and cash generation.
* Forecasts have been revised lower to reflect fit capacity constraints and ongoing customer discounting activity. Full detail of revised estimates is presented in the table below.
* Valuation. Following the revisions to our forecasts Entu (UK) plc now trades on an FY18 PER of 9.7x and an FY18 EV/EBITDA of 7.5x.

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