LRD (Laird) announced its Q3 trading update today, sending its price down 48% to 161p. Highlights from its announcement:
After a disappointing first half … we have experienced increased margin pressure … Management are taking actions to stabilise and improve the financial performance of the PM division with a considerable focus on managing costs and cash across the Group. We expect year end net debt to EBITDA to be within covenant limits of 3.5x
In other words, the wheels are coming off the wagon. The combination of deteriorating trading and and worrying debt levels seems to have really spooked the market. I assume that the dividend is now under threat.
The company appears on 2 Stockopedia shorting screens, which is not a good sign. In the latest set of accounts, pre-tax profits were less than 3 times debt, another sign that it is too indebted. Admittedly, there was a hefty exceptional charge. However, going back a year further, pretax profit was still less than 3 times debt.
According to Stockopedia, the average ROCE for LRD over 5 years was 4.8%. LRD is not a quality company.
I bought some LRD in Jan 2016 at 355p, which turned out to be a costly mistake. I did it because it passed the Stockopedia “Winning Income and Growth”, and I wanted to invest mechanically. The upshot of this is that I am having the worst relative performance to the index since my records began.
I am going to need to switch to a Plan B.
My intention is to jettison LRD at my earliest convenience. I figure that the shares are oversold at the moment. I realise that this is a highly dangerous argument, of course. When I see that argument brought out on bulletin boards, I tend to take it as a sign that everyone should head for the exit.