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Why Gentrack (ASX:GTK) Shares Are Taking A Bath

The Gentrack Group Ltd (ASX: GTK) share price fell more than 7% on the ASX today after downgrading its earnings guidance for FY19.

Gentrack provides billing and video monitoring software for essential service organisations such as energy businesses, water utilities and airports. It has offices in New Zealand, Australia, the UK, Singapore, USA and Europe.

Gentrack’s Updated FY19 Profit Guidance

Gentrack updated the ASX to say that it now expects its total 2019 financial year EBITDA to be within a range of between NZ$27 million to NZ$28 million.

Sadly, this is a decrease from the previous guidance provided by Gentrack. Management had previously predicted that FY19 EBITDA would be “marginally ahead” of FY18’s NZ$31 million.

The cause of the earnings guidance downgrade is delays relating primarily to customer ‘resourcing’ and assured shareholders that delays don’t mean that the projects are at risk.

However, Gentrack also said that part of the EBITDA expectations downgrade was due to bad debt risks in the UK, which is now a large component of earnings after a string of acquisitions.

Gentrack has always warned that its year-to-year earnings/profit depend on the timing of key contracts and project milestones. Management also reminded investors that it has a pipeline of opportunities in its utilities and airports business which will support its long term growth objective.

Are Gentrack Shares A Buy?

Gentrack used to be a market darling tech share along with other members of the ‘WAAAX’ ASX tech share group.

However, a company’s earnings generally have to keep going up for the company’s share price to continue rising.

I think Gentrack has a positive future and if it continues winning new business it could be one to watch at this beaten-down share price with it down over 20% during the past year. However, I am concerned about what effects Brexit may have on its UK business.

I’d personally want to wait until reading the FY19 report before deciding if $5 is a good price or not.

At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.

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