OMG

BUY/HOLD

19/05/2011 Ben Jaglom

Technology group OMG (OMG) has declared that a delay in revenue from an animation contract has led to a loss of £300,000 in results for the six months to March.

The AIM-quoted venture - a provider of image technology for the entertainment, defence, life science and engineering sectors announced that a slowdown in work in its 'House of Moves' studio in Los Angeles, a business with a US group known as the Guardian Project, will lead to a delay in payments to the second half of the year.

As a result both sales and profits will be hit by £1m. A loss of £300,000 was declared against the £1.4m profit reported in the same period last year, on turnover of £13.3m (2010: £14.4m). Net cash of £2.3m (2010: £4.1m) was revealed, primarily due to the £1.3m spent on acquiring US software developer Sensing Systems.

CEO Nick Bolton remarked that it was 'disappointing to report a loss' adding that 'global economic conditions have not yet stabilised.' However he argued that the 'strategic positioning as a group is as resilient today as it has ever been' and drew attention to the creation of a new subsidiary - OMG Life. This is its first consumer division and plans to use its technology in a variety of consumer application with the division working with the advertising agency BBH to market its range of products.

Following the update analysts at house broker Evolution Securities downgraded their profit forecast for the year to September 2011 from £3.6m to £1.8m on turnover of £31m. Profits of £3.6m are still pencilled in for 2012 while EPS of 1.6p and 4.2p are forecast for 2011 and 2012, respectively.

Shares in OMG slipped 18% following the announcement, and are currently trading at 31.5p. Recommended by Growth Company Investor last May at 27p, the latest news has startled the market but the fact remains that the order has been delayed, not cancelled altogether. We therefore retain our previous buy/hold rating.

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