Ashley Services Group Ltd (ASX: ASH) has seen its share price hammered in late morning trading, falling 64% to just 47 cents.
The cause was today's profit downgrade. Just 2 months ago, the labour hire, recruitment and training company had downgraded its full-year earnings before interest, tax, depreciation and amortisation (EBITDA).
In its prospectus, Ashley had forecast EBITDA of $31 million, but that was revised downwards to $29.3 million.
Now, Ashley has been forced to again reduce its full year EBITDA forecast by a huge amount. The company says it expects to see EBITDA of between $21 and $23 million, a drop of more than 32% if earnings comes in at the bottom end of the range.
The main culprit appears to be the company's ASG Integracom telecommunications business. Pro-forma prospectus forecasts of EBITDA have gone from $13.3 million to between $3 and $4 million. ASG Integracom provides numerous telco-related training programs such as short courses including alarm and CCTV installation, and various Certificate courses in telecommunications and network engineering.
The company says falling enrolments were primarily impacted by the termination of the $5,500 "Tools for your Trade" incentive program on 1 July 2014. Given that was 10 months ago, one wonders why management didn't take that into account at the time, and appear to have opened themselves up for a shareholder class action. Clearly from the chart below, prospectus forecasts for the 2014 and 2015 financial year might have just a little bit over-optimistic too.
Source: Ashley Services Prospectus
It wouldn't surprise me at all if law firms Maurice Blackburn or Slater & Gordon Limited (ASX: SGH) and litigation funder IMF Bentham Ltd (ASX: IMF) took a closer look.
Of course, given the dramas surrounding Australia's vocational education sector and in particular Vocation Ltd (ASX: VET), some may see today's announcement by Ashley Services as 'predictable'.
Foolish investors may want to steer clear of Ashley for now – there's the question of how much management can be trusted, given the share price reaction today.
