Although we don’t believe in timing the market or panicking over market movements, we do like to keep an eye on big changes — just in case they’re material to our investing thesis.
Coms’ (LSE: COMS) shares have slumped as much as 11% today after the company announced two significant changes to the financial results released on Monday.
The changes relate to the company’s reported earnings before interest, taxation, depreciation and amortisation, as well as earnings per share.
The company revealed that after consultation with its auditors, EBITDA for the period ended 31 January 2014 should have been stated as £827,348, compared to the previously reported £1.5m. Additionally, basic earnings per share have been upped from the previously reported 0.22p to 0.24p.
All other figures remain unchanged.
Commenting on the revision, CEO Dave Breith said:
“I apologise for this unforseen error and would like to state that the EBITDA number still represents a significant increase from the Company’s announcement on 14 May 2014… The Company continues to trade strongly and the Board is encouraged by the order in-flow in the current year.”
Not the end of the world
Despite this earnings revision, Coms’ shareholders still have plenty to look forward to.
Indeed, the company’s growth during the past year has been driven mostly through acquisitions, some of which are not yet fully reflected in results.
For example, Coms acquired Redstone Converged Solutions Ltd during November of last year, and according to management, “The true impact of the… acquisition is yet to be realised in financial terms”.
What’s more, Coms has continued to do deals following the completion of the 2014 financial year. The company has since acquired loss-making VAR CloudXL.
These two acquisitions should help Coms integrate its customer offering. Over the longer term, Coms’ integrated operations should attract customers and boost the company’s profit margins.
Nevertheless, as stated within Com’s original earnings statement, carry-over of one-off reorganisation costs will hurt performance during the first half of 2015. However, management remains confident that any losses will be fully recovered during the second half.
Impressive performance
Investors should remember that Coms is still in the process of turning itself around and the company’s progress during the past year has been staggering.
Indeed, the company’s revenue and gross profit has surged a staggering 763% and 411% respectively during the past year. In addition, Coms’ management has been quick to alert investors about the above accounting mistake and is looking to put the problem behind it as soon as possible.
With this in mind, shareholders should not let one mistake blight Coms’ successful turnaround story.
