Shares in printer PMP Limited (ASX: PMP) are currently down 32% after warning that 2018 profits will be substantially lower than expected. There may be worse to come.
The group has warned today about the effect of pricing pressures, and short run work leading to lower efficiencies. As a result, it has downgraded 2018 EBITDA forecasts from $70m-75m to $50-55m, and 2019's forecasts from $90m-100m to $70m-$80m.
The merger of PMP and IPMG was expected to deliver $55m of cost savings. In total $43m have already been achieved, but the final $12m has been delayed. It will cost a further $29m to achieve the full synergies.
Despite the fall today, I would not be rushing to buy PMP. The revised 2019 forecast of 40% growth still seems optimistic to me. A bad industry will normally defeat a good management team.
Volumes and margins seem to be inexorably downwards. Although the merger with IPMG was entirely sensible, PMP will have to run very hard to stand still in my view. A multiple of 7x EBITDA in a declining sector is still too rich for me.
