Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

EG Solutions - a problem that can't be solved.

I noticed that EG Solutions (‘EGS’), the AIM quoted IT software and services company had to issue a profit warning a day before the Christmas break.

Apparently as a result of slower than expected conversion of opportunities into sales since October 2006, the Company anticipates that the operating results for the year ending 31 January 2007 will fall significantly below current market forecasts.

It went to say that while it ‘expected (although one can’t be too sure now) to close further contracts before the year end, these will not have a significant impact on the results for the year and would be fulfilled during the next financial year.

We were shareholders in EG but thankfully got out many months ago. Quite frankly we just didn’t understand the business and having made a nice short term return thought it prudent to quit when we were winning.

I have great admiration for what Elizabeth Gooch (Chief Exec and principal shareholder) has achieved with EG but for me it remains the sort of business that really isn’t suited to the stock market as a stand alone entity.

With the shares having fallen c45% following the announcement Elizabeth Gooch, Chairman Rodney Baker-Bates and Finance Director David Blain each ploughed in to buy shares in the company. Gooch herself Gooch bought 131,578 shares at 76p, raising her total holding to 54.21% stake.

Despite their efforts to restore investor’s faith I feel it’s going to take hard numbers to encourage investors to return to the fold.

Having announced on 3rd October that it was ‘on target to meet its expectations for the full year’ the picture has changed dramatically in two and half months. Clearly this is a business where a few chunky contracts have a material impact on results. Whilst this is good news on the one hand, when delays do occur they don’t go down well with us short term stock market types who generally like management to consistently meet (or preferably exceed) expectations.

EG floated in June 2005 with a market cap of c£12m and its market cap rose at one stage to as much as £24m! In our opinion this was somewhat inflated for a business that was so clearly reliant on one person.

The EG website tells us that they are ‘Market Leaders in improving Operations Management’ and that their mission is to ‘transform Operations Management in the financial services industry through Operations MI, Production Management and Continuous Improvement’.

Unfortunately, having never worked in a business that has required EG’s unique skills I remain none the wiser as to what the company actually does and it’s unique selling point, other than the abilities of its Chief Exec-perhaps someone can enlighten me!


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