Entu Shares Drop To New Low After Latest Trading Update

It was one hell of a news day on Wednesday. The major story to break was the Synseal announcement of their new investment deal, which I published and added my own thoughts on the matter. You can catch up with that post here. It was also the post which helped to generate so much traffic on here that I actually smashed my daily page views traffic record, sailing past the 2000 page views mark before 11pm.

But, another story that continued to brew in the background is the deeply trouble Entu. KPMG are at the company trying what they can to save it. Earlier on Wednesday the company issued another trading update. It was not good.

“Failed to reach a conclusion”

Here is the latest trading statement in full:

Entu (UK) plc, (“Entu” or the “Company” or the “Group”), the home improvement group providing energy efficiency products and services to homeowners and businesses in the UK, announces an update on its strategic review which commenced on 6 July 2017.

The board had previously announced that, following receipt of several approaches and with the support of its existing lenders, the Group was proceeding with a small number of interested parties in relation to a potential refinancing of the Group. The Board repeats that all of the proposals received attribute little value to the equity in the Company.

Discussions with the preferred party have failed to reach a conclusion although discussions with one remaining party are continuing. The Company is undertaking these discussions as a matter of urgency given the need to bring financial stability to the Group in the very near future.

If the current discussions are successful, the Board expects the Group to see a further increase in its level of indebtedness as new working capital is made available to the business. If current discussions are unsuccessful, it is likely that the parent company will be placed into administration with a view to selling the trading businesses. There is no certainty that any of these proposals, or any alternatives, will be ultimately successful. The Board expects to provide a further update shortly.

The Group also announces that it has decided to review its RRSA service which it has temporarily stopped providing whilst it evaluates alternative formats. The Directors are assessing the impact on its profit guidance to the market for the current year and the following year.

As a result of this statement, this is what happened to the share price:

Credit: Bloomberg

Hard to see a way back for the company now.

First mention of the “A” word

I believe this to be the first trading statement update where the word “administration” has been mentioned. As the text above states, the talks with the preferred bidder have fallen through, with talks ongoing with the only interested party left. Although the language used in the statement doesn’t exactly paint those talks in a positive light either.

If and when these current talks fail, the parent company is going to be placed into administration. The very thing KPMG are known for more than most I would say. It will be up to them to then find buyers for the various parts of the company that are still trading and are of any worth. This will be a tough task for KPMG, and unfortunately, as it the case with situations like this, jobs will be lost. It is the human aspect which is the most sad when scenarios like this arise. The board will be OK. Those in higher level positions will be OK. But for everyone else it’s going to be a nervy time as we start looking towards the end of the year and the bills still have to be paid.

My guess is that it may not be that long before we know the final outcome of the remaining discussions. If the preferred bidder has walked away, it must be for a legitimate reason, which no doubt will be in the minds of the last remaining potential buyer.

It’s also worth remembering that if Entu goes down, it will damage a whole host of other companies too. We can expect suppliers to Entu companies to already be getting nervous about how much, if any of their bills are going to get paid. This will negatively effect those companies and their financial performance. Also, companies who sub-contract their fitting to Entu companies will get hit too. Remember this is, or rather was, a main player in the industry, and so would have provided a substantial amount of fitting work to a lot of fitters. That’s a lot of work going up in smoke if a deal cannot be found in time.

If Entu goes this will be a big deal, and if I were the other companies of a similar size and type I would be looking at this and taking a long hard look at my own business model and adapting it quickly. It may not be that long before we see another company in crisis.

UPDATE: 10am Thursday 24th August

Since the original publication of this article, shares in Entu have been suspended and the parent company is expected to be placed in administration by KPMG. You can read the latest trading update from the company here: http://otp.investis.com/clients/uk/entu_plc/rns/regulatory-story.aspx?cid=965&newsid=911152