Disappointing results - SAL, SAL, SAL?

It's always a jolt when a company issues unexpectedly disappointing results, particularly when there's been no prior warning. That's exactly what Space and People did last week which caught investors unawares.

I took a stake in Space and People (SAL) in a couple of tranches back in December 2016 when the company had been in the doldrums, and the share price was in the low 20s and mid teens. From my research I had anticipated a recovery and was duly pleased that a recovery in fortunes did indeed occur in 2017. The company returned to profit, good cash generation and the restoration of a dividend. In fact the dividend alone meant a nice 7% return on my investment. The shares shot up into the mid thirties and until last week I was sitting on a nice capital return.

However, the interims results disappointed and full year results are anticipated to be below market expectations. With the dividend included, I'm back to a mere 1% paper profit.

The shares retraced around 35% last week. It appears a little harsh to me, and I'm happy to sit tight and see how things pan out for the rest of the year and hope they get back on track again in 2019.

SAL is currently valued at £3.9m. Whilst results for the full year will disappoint, they do expect to report a profit of around £200,000 and they have a solid balance sheet with net cash around £510,000 and no debt. Whilst there was a cash outflow of £1.72m in the first six months, this is a seasonal business and they may still pay a small dividend, although I have assumed this from the following statement, "The group will generate a profit this year and it is the Board's intention to maintain our dividend policy." The all important Christmas period is yet to come so fingers crossed that they deliver on revised expectations.

All eyes on 2019 then where they make the bold statement:-

"We are confident that we can regain sales momentum for next year which combined with the costs savings already identified. Our 2019 forecasts being unchanged despite the lower than anticipated 2018 outturn."

If they do this then the shares will be the bargain that I originally hoped. Meanwhile, at SAL's lowly market cap. and with a solid balance sheet, the shares have little downside and plenty of bad news already priced in.

I do like what SAL offer as a company and I'm sure that in a tough retail environment then companies will need their services short, medium and long term. Here's their website and recent half-year results:-

http://www.spaceandpeople.co.uk/

https://www.londonstockexchange.com/exchange/news/market-news/market-news-detail/SAL/13808000.html

Finally, George Watt (Non-Exec Chairman) bought around £20,000 of shares immediately following the interim results in a vote of confidence. I also notice that the share price has ticked up marginally today on a 145,000 share purchase (around £30,000) which I'd suspect may be another Director purchase, although this is speculation on my part.

As ever DYOR. I own shares in SAL and don't recommend buying or selling.

twitter: @michae1mouse