The Speedcast International Ltd (ASX: SDA) share price is getting whacked following the release of a profit downgrade. At the time of writing the shares are down a huge 38%. Yikes!
Speedcast is the largest provider of remote communications and IT services in the world, delivered via a network of 70 plus satellites and bolstered by extensive on the ground local support from 40-plus countries. They serve more than 2,000 customers in over 140 countries in sectors including Maritime, Energy, Mining, Enterprise, Media, Cruise and government.
What Did Speedcast Say?
As far as ASX announcements go, this was not a good one for shareholders, that’s for sure.
In the announcement, Speedcast provided an update to earnings expectations for both the half and full year. They have a 31 December year end. Speedcast said they expect to achieve EBITDA of US$60 to US$64 million for the first half of 2019.
For its full-year 2019, Speedcast now expect to achieve EBITDA of US$140 to US$150 million. Management had previously guided for US$160 to US$171 million. Using the midpoints of these numbers, it looks like EBITDA will be US$20 million lower than the previous forecast, or around 12%.
Why The Downgrade?
Management noted key factors impacting earnings were weaker market conditions, some delays to expected revenue, increased churn from a major contract, continued technical difficulties with their Carnival cruise ship contract, lower than expected earnings from their Globecomm acquisition made late last year… the list goes on…
Speedcast state these factors as all being non-structural and also “remain excited about the growth potential in the Globecomm business“. Moreover, they are “highly confident they can achieve revised full year guidance for 2019”, even though it “implies a larger increase to Underlying EBITDA from 1H to 2H than seen in previous years.”
Further, “over the medium term, Speedcast continues to expect healthy growth in Maritime – both in commercial shipping once this year’s churn event is digested, and in Cruise where bandwidth needs continue to grow, and also in Government – with continued increase in defense spending and revenue synergies from the Globecomm integration expected in 2020 and beyond”.
What Now For Shareholders?
It has been a downward spiral for Speedcast shareholders since the share price peaked at $6.84 in August 2018. The shares are currently $2.14, down almost 70% from their high. There’s a lot for shareholders to read in today’s announcement and it seems like a lot is going on inside the Speedcast business.
At the end of 2019 net leverage is expected to be above the previously communicated target of 3x to 3.2x times but within the debt facilities covenants. Personally, I prefer investing in companies that have little or no debt and therefore this one is not for me.
Disclosure: At the time if writing David does not have a financial interest in any of the companies mentioned.