Canaccord Genuity moves Mission Group to 'speculative buy'

Canaccord Genuity said that whilst Mission anticipated "a more encouraging outlook" with interims last month, it has since seen a "sharp and sudden" reduction in client spend, where deferred spending and some customer churn has led management to now adopt a "materially more cautious" outlook for the remainder of the year.

As a result, Mission has enacted an operational review, the main cost benefits of which it expects in the next trading year, and has also indicated proposals to dispose of non-core businesses which, if successful, should further remove costs while proceeds improve the "highly geared" financial position.

"We tweak our FY23E revenue to reflect inorganic contributions, whilst the increased cost base in anticipation of revenues now lost/reduced/deferred and a higher interest charge is expected to deliver adj. PBT of £3.1m (vs previous CGe £7.9m). Further, working capital outflows before YE are set to raise net debt to £24m, placing the group in contravention of its debt limits, where management is working with the bank for a resolution," said Canaccord.

"As such, it is focused on reducing the debt balance, canceling the interim dividend and identifying both immediate and long-term cost savings, whilst any non-core disposals should further improve the financial position."

The Canadian bank said that given the "extent of moving parts", it had chosen to "prudently trim" its forecasts for the stock and suspend its 'buy' rating until "a more detailed update" following the initial rationalisation effort, anticipated in early 2024.

Reporting by Iain Gilbert at Sharecast.com