# Entu (UK) plc Trading in line but dividend cut in FY17

- Link: https://www.directorstalkinterviews.com/entu-uk-plc-trading-line-dividend-cut-fy17/412723278
- Published: 2017-02-07T07:28:34+00:00
- Author: Giles Arbor

**Entu (UK) plc** (LON:ENTU) has announced that EBITDA from continuing operations
will be within the range of its previous guidance of £2.5m to £2.9m at £2.6m to 
£2.7m. This is in line with ZC forecast of £2.7m in FY16. The FY16 outcome, combined
with the fact that revenue for the first three months of FY17 are also in line, 
is reassuring considering the issues the business has faced during the year. FY17
forecasts assume a c. 60% increase in EBITDA as profitability bounces back. However,
as a result of a balance sheet review and the introduction of more prudent accounting
policies, the company will not pay a final dividend for FY16. This means total dividend
for the year will be 0.5p, not the 1.5p forecast. We leave income forecasts unchanged
in FY17 and FY18 but reduce dividend expectations. Although the company does state
that it intends to reinstate the dividend as soon as possible the cut to the dividend
is disappointing. The valuation on FY17 earnings of 5.4x reflects the difficulties
the business has faced over the last twelve to eighteen months.

Getting to grips with legacy issues: We welcome the balance sheet and accounting
policy reviews, despite the historical issues that it raises. The change in accounting
policy in the Repairs and Renewals Service Agreements and Finance Commissions will
impact prior year results by c. £2.0m but will not have a material impact on the
FY16 outcome. We await FY16 results for greater detail on the adjustments needed
before adjusting historic numbers. Management’s commitment to reorganise and add
the necessary infrastructure will leave the business in a better position and with
a cleaner balance sheet post all discontinued operations being fully written down.
We previously treated £5.0m of advanced payments as debt, on the same basis, the
net debt forecast for FY16 improves to £4.2m from £5.0m.

No impact to profit forecasts but dividend expectations cut: That today’s statement
indicates that FY16 results will be in line with expectations is reassuring when
considering the difficult year the business has experienced. Further to this, the
comment that the first three months of the current year is in line provides confidence
that FY16 will prove to be the trough in earnings. FY17 forecasts assume a significant
bounce in profitability as adjusted PBT increases c. 75% to £3.9m. The only material
change to forecasts on the back of today’s statement is that we reduce dividend 
expectations in FY16 to 0.5p from 1.5p. The 0.5p relates to the interim dividend
previously announced. We assume the company pays a dividend of 1.0p in FY17 and 
1.5p in FY18. This improves the net debt position to £0.9m from £1.2m in FY17.

Valuation: On FY17 earnings, Entu (UK) plc shares are trading on a PER of 5.4x. 
The rating is reflective of the difficulties the business has faced and the uncertainty
with regards forecasts in FY17 and FY18. On FY18 earnings the multiple falls to 
4.2x.

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