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Shares in AIM listed tech stock Enables IT (LSE:EIT) formerly Nexus have zoomed ahead over the past few days and now trade at 32p valuing the business at £4.75 million. Notwithstanding that bounce this is still one of my least successful tips from my years at t1ps. At least I take some consolation from my efforts to remove the old management team who were useless and bring in a new team that has reversed a decent business into Nexus. Had that not happened I fear that this one would have gone under.
But why have the shares raced ahead? Simple. There was a big stock overhang. That has been cleared and volumes are not that great. Now you have a few Bulletin Board loons smelling momentum and predicting all sorts of nonsense. It is time for a sanity check.
I discussed the RTO and where Enables then stood a few months ago in detail HERE. For a full background briefing read that piece.
What now? Well, the contract Nexus had with Hill & Knowlton in the US has been lost. The new management are not unhappy with this as it was low margin work and had no long term earnings visibility. It will hit profits this year but as capacity utilisation in the Maine data centre is built back up again it will boost returns from next year onwards. The core Enables business is performing strongly (as expected). And Enables has, I believe, got net cash.
The loss of HK means that in the current year the group should after all costs (including much reduced PLC costs) achieve break-even or better but next year ( to September 30th 2014) I would expect a meaningful profit. I think firm numbers can only be pencilled in once the interims are published. The management team that went in does have experience of delivering on a buy and build strategy and I would expect that to start to happen in the second half of this calendar year.
Having advised averaged down at 22p HERE would I chase the stock now? No. I think that we need to see the interims, guidance from the management and see the new team articulate its strategy. That will take place within the next two or three months. The good news is that Nexus has its strongest balance sheet for years and is trading at breakeven or better and that it is back on the growth path.
It will take a long time to get back to where it was (remember the shares were consolidated on a 100-1 basis) but the new management and the Enables guys have a big equity stake and they are incentivised to deliver. At this level you certainly keep it on your radar screens.
If I am looking for one tech stock to buy right now it is a far larger beast and is analysed HERE
Tom Winnifrith writes for 10 US and UK websites. You can follow him on twitter @tomwinnifrith and can get links to all of his material via www.TomWinnifrith.com
