Universe Group

SELL

05/12/2008 James Crux

Universe, the retail and loyalty systems provider backed by Growth Company Investor at 7.25p in 2007, has warned that annual profits to December will disappoint.

While revenues for the year to December are expected to have risen by a very creditable 25% to £16.5m, with sales for the second half thought to be 9% ahead of the first half-year, the company will miss its full-year operating profit forecast.

Behind the shortfall, said Universe, was a slower than predicted roll-out of equipment at the recently established JetSet operation, a vehicle-washing technology and ancillary forecourt equipment business, whose recent contract wins had underpinned the full-year estimates. Disappointingly, the credit crunch led to the sudden withdrawal of funding for the JAV business, and Universe didn’t have the cash to step in and fund the expansion of JAV, though management has high hopes for the business long term.

The good news is that Universe will return to profitability at the operating level, which compares favourably with a £300,000 loss for the first half.

In the summer, Universe reported good top-line growth of 26% to £7.9m for the half to June, buoyed by success in the petrol forecourt market. However, investment in the JetSet operation meant that profits of £447,000 reversed to losses of £618,000.

In our view, given increased uncertainties, it could be time to cut your losses at Universe, whose shares have slipped from an already lowly 52-week peak of 6.75p to present levels. Sell.

Save 50% off your first year’s subscription to Growth Company Investor magazine, and gain immediate access to all the recommendations online. Click here.