Shares in education software and services company Tribal Group (LSE: TRB) have fallen by as much as 53% today after it released a profit warning, fundraising and a move to AIM. Clearly, the company is experiencing a number of challenges at the present time, with sales momentum continuing to slow and a number of key customer contract milestones having been deferred until 2016.
As a result of this, Tribal expects adjusted operating profit for the current financial year to be significantly lower than anticipated. Furthermore, the company has identified that a number of significant cash receipts may not be received until the next financial year. As such, net debt could be higher at the end of the current year tha previously anticipated. This means that Tribal may break its debt covenants and so is in talks with its lenders to negotiate amendments to its terms. Additionally, Tribal has announced a rights issue of up to £35m, with more details to come when it releases its full-year results.
Undoubtedly, Tribal is enduring a prolonged period of disappointment and while its shares have fallen by 80% already this year, further falls could come. That’s at least partly because the company’s payments are linked to customer programme milestones in some cases. And with the milestones not being within Tribal’s control, there’s the potential for further delays to payments. It seems Tribal is a stock to watch rather than buy at the present time.
Home sweet home
Meanwhile, the house building sector continues to have excellent growth potential for 2016. That’s at least partly because of a reduced chance of an interest rate rise now that inflation is near-zero, thereby potentially maintaining high demand for property. Partly as a result of this, Barratt (LSE: BDEV) is expected to increase its bottom line by 18% in the current financial year. This puts it on a price-to-earnings growth (PEG) ratio of just 0.6, which indicates that share price growth could lie ahead in 2016.
Furthermore, with Barratt yielding 5% at the present time from a dividend that’s covered 1.8 times by profit, it remains a hugely enticing income play too. With income-seeking investors still likely to be reliant on shares for their income next year due to low interest rates, Barratt is likely to remain firmly in favour.
Good times ahead?
Similarly, buying Vodafone (LSE: VOD) right now appears to be a very sound move. Many investors will be rather lukewarm about that prospect due to Vodafone’s disappointing performance in recent years. But that has mostly been due to challenges in the markets in which it operates rather than internal factors. In fact, Vodafone has steadily been investing in its offering and in diversifying its business so as to provide a more visible revenue stream in future years.
This should allow it to become a more resilient and reliable income stock over the medium term. And with its shares yielding 5.5% and earnings growth forecast at 19% for next year, there appear to be adequate catalysts to push the company’s share price higher in 2016.