Software group Alterian has lost nearly a fifth of its value following a profit warning and the departure of its chief executive.
The company, which supplies software to government, retailers and financial services companies, said full year revenues would be 10% below market expectations of £42m to £44m, mainly due to a major partner deferring a licensing contract renewal and extension. The deal was due to be signed at the end of March, but the partner said it had undergone management changes and could not complete the contract process in time. Alterian still expects to sign the deal. It just does not know when.
As a consequence chief executive David Eldridge has decided to fall on his sword. He said:
The results for the year will be disappointing, principally as a result of [the contract] deferral. I take my responsibilities seriously and am stepping down from my role as chief executive.
The message from the company is that "fundamentally nothing has changed in the business" other than this one deferral, albeit it recognises that it was too dependent on lumpy deals – and new products were perhaps released too late in the year to make an impact.
Alterian has strong products, but we will want visibility on the chief executive succession. New chief financial officer Guy Millward does not intend to step up as chief executive and the search has started.
Given what we know today, we would probably turn buyers at around 140p.
George O'Connor at Panmure Gordon has also changed tack following the warning, going from buy to sell. He said:
While investors appreciate that signing deals late in the period is one of the defining attributes of software companies (so too are the contracts that slip 'to the right') reaction to this latest profit warning will be exacerbated by the resignation of the chief executive.
While shares will tumble this morning – in time, likely the 18 April update, a more reasoned approach might prevail. But even then our concern is that Alterian – more importantly Alterian shareholders - will not benefit from a fire sale. We very reluctantly move to sell, until we get greater clarity as to the outturn. Target price from 260p to 163p.
