Altitude Group: H1 update; hope deferred!

Altitude Group: (ALT.L, AIM All-Share, Market Cap £64m, 92p, 2.2% of JIC Portfolio and 0.0 of JIC Top 10)Trading update for the six months ended 30th June 2019.

Conclusion: On May 28th I concluded, “as long as management execute the strategy well, the shares look very cheap. That remains the case, but I don’t think one can glean enough information from today’s announcement to be confident that the potential will be realised.” Three months on and I think that remains an apt conclusion. There are some signs of the business model starting to work but as yet, it is not flowing through to revenue and profits as fast as hoped. That does not mean it won’t in future but there will be some disappointment with today’s update. It will be interesting to see what happens to forecasts. The shares have drifted ahead of today’s results and I anticipate more weakness in the short term. Early indications look like it will be off at least 15%. A couple of weeks ago I reduced the position to 2.5% in line with my target weighting of 2.5% for a stock that I judge as High Risk / High Reward. That rating remains appropriate. I am not giving up on it but am glad I reduced!

The good bits:

AIM Smarter increased the number of members by 14% to 2185 since acquisition in January.

Aggregate revenues at AIM Smarter increased by 12.1% to $2.13bn.

US revenue to Altitude increased six-fold to $1.9m for the quarter ending 30th June.

Growth in revenue in the US means that the US business is now self-funding.

The group retains current cash resources of £3.0m and no debt.

The bad bits:

“Despite this rapid growth in the very short post-acquisition period, overall revenue has not accelerated as quickly as envisaged by the Company.”

“This means that, despite growing at an historically record pace, Q3 and Q4 revenues will track below expectations and it will take longer to achieve the forecasted levels.”

Nichole Stella, Chief Executive Officer, commented:

“The acquisition is proving to be transformational, as underlined by the six-fold increase in Q2 US revenue. Whilst revenues have not advanced as quickly as we had hoped, the investments made into the supplier partner programs, data insights and new member services offering, allow us to look forward with confidence. We have the technology and have successfully built out the necessary team, infrastructure and service offerings to drive a sustainable and growing business far into the future. I remain confident that the potential for the business is greater than originally thought.” 

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