# Entu (UK) plc Supply constraints impact performance

- Link: https://www.directorstalkinterviews.com/entu-uk-plc-supply-constraints-impact-performance/412730290
- Published: 2017-06-14T07:29:08+01:00
- Author: Giles Arbor

**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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