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.

SMC Group - are there other problems lurking?

Today’s announcement from SMC Group may have caught many unawares but I know there have been suspicions from some quarters that it was all too good to be true with the highly acquisitive AIM quoted architectural and design group.

It appears that the treatment of work in progress was a little too enthusiastic and that ‘a more conservative, consistent and centralised approach to the treatment’ should be applied going forward.

The impact of this change will result in profit before tax and amortisation for the year ended 31st December 2006 to be c£5.1m. With consensus estimates for the year (obviously prior to today) of pre-tax profit of c£7m this is clearly a fairly drastic amendment.

Interestingly the group is only covered by 3 research houses 2 of them being sponsored research (paid for by SMC) and one the house broker.

Surely a change of this materiality implies that the auditors would have seriously questioned the accounting treatment of WIP and been inclined to issue a qualified opinion.

A further question is how this will impact on the group’s deferred consideration for the numerous acquisitions it has made.

I was previously a shareholder having participated in the placing back in February. Quite frankly I got scared with all the news flow and acquisitions and decided to take my money and run.

One look at all the news that has been issued by the company over the past 12 months and you would be mistaken in thinking that this was a blue chip!

Going forward I think we should expect less of the sensation and more substance!


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