Shares in struggling financial services company Tungsten (LSE: TUNG) slumped by as much as 10% in early trade this morning, after the company reported a wider than expected loss for the six months ended 31 October 2015.
However, at time of writing Tungsten’s shares had recovered some of their early losses after the group announced that it had reached an agreement to sell Tungsten Bank for approximately £30m in cash, following a previously announced strategic review. The consideration represents net assets of £25.4m plus a premium.
Commenting on the disposal, Richard M. Hurwitz, Chief Executive Officer said:
“We have undertaken a thorough self-assessment of all aspects of our business, which has given us great clarity on the strategic outcomes we desire and the paths we will take to achieve them… The management team can now concentrate on Tungsten’s core businesses as we look to create the world’s most trusted business transaction network.”
But while the sale of Tungsten’s controversial banking division is relatively good news, Tungsten’s figures for the six months to the end of October are hardly anything to get excited about.
Losses growing
For the reported period, Tungsten’s revenue rose 28% to £13.1m and the group’s earnings before interest, tax, depreciation and amortisation improved by £3.7m to £9.5m. However, the group’s loss after tax rose to £17.6m, compared to £14.7m reported a year ago.
Group net cash and cash equivalents were £39.7m at the end of October, although it’s unclear how much of this cash belonged to Tungsten Bank. Still, when the sale of the bank closes, Tungsten will receive a much needed cash infusion of £30m.
Nonetheless, it’s clear from Tungsten’s half-year report that the company is making progress. The company boasts that during the period it signed nearly 500 new integrated supplier customers, worth £0.5m in first-year revenues, and a further 13,000 web form suppliers.
Also, during the six months to the end of October, the group saw a 10% increase in e-Invoice volumes to 7.5m with a 14% increase in e-Invoice value to £55.9bn. Total invoice volume growth was 8%. What’s more, during the period the company was able to negotiate, “renewals with 14 buyer customers to deliver future price increases averaging 70% as customers recognise the increasing value they derive from Tungsten.“
Time will tell
So, Tungsten’s key performance indicators seem to be heading in the right direction, but City analysts don’t expect Tungsten to report a profit anytime soon.
Analysts expect Tungsten to report a pre-tax loss of £18.3m for the year ending 30/04/2016 and a further loss of £5.3m for the financial period ending 30/04/2017. If all goes to plan, Tungsten is on track to report a profit for the year ending 30/04/2018. It should be noted however, that these forecasts are likely to change now that Tungsten has announced the sale of its bank. The sale will reduce group costs by £2m per annum, and free up funds for reinvestment, which could help accelerate sales growth.