Daily ShareChat: Wellington Drive Technology

Monday 2nd August 2010

Wellington Drive Technologies continues to ramp up sales but has faced some significant headwinds in the six months ended June which are continuing, says Forsyth Barr analyst Andrew Harvey-Green.

In particular, sourcing electronic components and dealing with a weak Euro are not helping, Harvey-Green says.

The difficulty supplying customers, while not Wellington's fault, is a key issue to resolve. At this stage, it does not appear that Wellington has lost customers as a result but, if its competitors have not been as greatly affected, then customer losses are possible,he says.

In the short-term, those supply issues will impact on gross margins, inventory levels and sales volumes. Harvey-Green has cut his EBITDA (earnings before interest, tax, depreciation and amortisation) forecast for calendar 2010 by $3.7 million to $7.8 million.

Wellington continues to disappoint on the earnings front and issues keep arising that push profit and cashflow breakeven later and later,Harvey-Green says. He now expects the company will become profitable at the EBIT level in the first half of 2012 and cashflow break even by the second half of 2012.

He estimates the company will have to raise yet more fresh capital within the next three or four months. It raised $11.1 million from placements and a share purchase plan between September and November last year.

Recommendation: Hold

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