Gentrack shares slump below IPO price on profit warning

James Docking, CEO of Gentrack, which provides computer software for industries such as airports and utility companies. Photo / Brett Phibbs

Shares of Gentrack Group plunged as much as 19 percent after the airport and utility software company said it won't meet prospectus forecasts for sales and profit because of a customer dispute and a delayed contract upgrade.

The share recently traded at $2.20, having dropped as low as $2.10, falling for the first time below its initial public offer price of $2.40 in a sale that raised almost $100 million from new and existing shares in June. Profit in the 12 months ended Sept. 30 is now expected to be $2.5 million to $2.8 million - as much as 32 percent below the $3.7 million forecast in a prospectus first published on May 26. Sales would be between $38.1 to $38.5 million, missing the prospectus forecast by as much as 6.2 percent, the Auckland-based company said.

""These guys have been running this company for a long time, they've been a major shareholder, it shouldn't end up like this," said Brian Gaynor, executive director at Milford Asset Management. "In the business world, unexpected things do happen, but when you're doing and IPO and raising money from the public you should be in clear air so that the potential for anything negative happening is very, very small."

The company cut its forecasts because of "delayed go-live on a major project where a dispute has recently arisen between Gentrack and the customer on the payment for the extra effort required from Gentrack to complete the project, which Gentrack expects to be subject to mediation," it said in a statement. It also reflected "a delay in signing a substantial upgrade contract with an existing customer, which is still expected to be signed by the financial year end."

Gentrack raised $36 million of new capital selling shares at 2.40 apiece in its initial public offering, to repay debt and cover IPO costs. At the same time, existing shareholders including chairman John Clifford and executive director James Docking raised about $63 million selling existing shares. After the sale, existing investors held about 43.2 percent of Gentrack.

Docking was in an analyst briefing and wasn't immediately available for comment and Clifford was currently on a plane to Australia, the company said.

Gentrack did flag delays in customer contracts in the risks section of its prospectus. A delay in a major project, after dispute between the company and its client over extra payment had result in mediation, and a hold up in signing a substantial upgrade with an existing customer was behind the drop in profit, it said. In the company's risk section of its prospectus it flags "failure to successfully implement projects" as a risk.

"Gentrack's financial performance may be adversely affected if it fails to implement projects, or experiences delays in the implementation," the prospectus says.

Clifford and executive director James Docking, who has run the Gentrack business since 1995, teamed up to buy Talgentra in 2012. Gentrack has 150 utility and airport customers in 20 countries, and employs 180 people in offices in Auckland, Melbourne and London, according to its statement. Sales in the 12 months ended Sept. 31, 2013, were $40 million, generating a profit of $6.6 million.

The downgrade won't prevent the company from paying dividends of $2.6 million in December and Gentrack's projections for 2015 are unchanged, the company said.