DIA – Strategic review and trading update

The stock market is proving to be a minefield today. DIA (Dialight) released a strategic review and trading update today, sending the shares down 15%. I thought DIA was supposed to be a great growth company, so why would they need a “strategic review”?

The shares trade on a PE of 22.4, so they’re not cheap. ROCE over 5 years has averaged 21.5%, and the dividends have a CAGR of 17.8%. Borrowing doesn’t seem excessive either, so what gives?

In their RNS, they do say that the do not expect to declare a dividend before 2017. Wait, what? That sounds serious. Operating cashflows in 2012, 2013 and 2014 are below net income. For 2013 and 2014 they had negative free cashflow. Are we seeing aggressive accounting here, I wonder?

“The Group’s strategic focus is on the delivery of profitable growth and therefore the Board does not intend to declare a dividend for the current year.” Growing companies should increase their dividends, not cut them. It sounds like spin to me, and more like directors are trying to stop the company going down the plughole.

Interims for 6 m/e 20-Jun-2015 show negative cash from operating activities, too, with further investing worsening the free cash-flow position.

I see on the chart that the stock took a dive in June, when they issued a trading update. They said that “The Board believes that this reduction in orders is linked in part to a slowdown in the oil and gas sector.” Which is a pity, of course, because I seem to recall that that was supposed to be part of their engine for growth.

RS6m was 4.7% before today’s fall, so there’s nothing suspicious on that front. Stockopedia gives it a momentum score of 25, which is poor, but not disastrous. It has a Stock Rank of 33, which is not great. A combination of poor momentum, poor value, and medium quality is giving it a low score.

I once had a holding in DIA a few years ago, but sold out. It looks like I did myself a favour.

It’s difficult to see an investment case right now. It is too highly valued, it’s business momentum is downwards, as too is its share price. Elimination of the dividend suggests to me that they are back-pedalling, and that their problems may be deeper than they are letting on. Analysts have the following revenue targets: 2015E £192.5m , 2016E £182m. I imagine that they will have to lower them.

This share game malarkey isn’t easy, is it?

As ever, we shall see.

ASX 3493

About mcturra2000

Computer programmer living in Scotland.
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