PAS Group - Share Price Falling - Why?, page-11

Its always interesting to see how companies with an incentive to talk down their results provide guidance including non-recurring costs, but everyone else is at pains to divert attention elsewhere.

Guidance of $9-$9.5m is down on $11.6m in the prior year (about 18% down) so not a great result as it will mean fixed charge ratio remains weak (probably in the 1.5x/1.6x range for the FY). Importantly however, their net cash position should keep the bankers content. Also, they should be on track for at least $15m for the full year, so we are still looking at a business trading at less than 4x EBITDA. That said, I think full year dividends of 2-2.5c are probably as much we can hope for, particularly given the incentives of the major shareholder.

However, my bigger question on the H1 results can't be answered with the info provided. Retailers have a lot of flexibility to 'manage' provisions (and ultimately earnings) at any given balance date. Accordingly, until we see the results its difficult to say anything concrete. I can see incentives either way on this point - the new owners trying to hold earnings down, or the underlying result is even weaker and they are trying to boost it to support fixed charge cover.

Other initiatives look promising (including continuing online growth and US expansion plans). Also, its worth reiterating that H1 was probably one of the worst retail environments for some time, and weak cycles don't last forever.