The CogState Limited share price rebounds on profit report

CogState Limited (ASX:CGS) delivers a mixed year, with plans to cut costs.

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

This morning cognitive testing business CogState Limited (ASX: CGS) posted a net loss of $0.56 million on revenues of $28.96 million for the financial year ending June 30, 2018 (all figures in US$). The net loss was a marginal improvement on last year's results, with total revenue climbing $2.56 million or 10% over the year. Before tax the group booked a profit of $0.1 million.

The group also lost a couple of important clinical trials contracts in July 2018 related to cognitive testing for Alzheimer's research over what has been a mixed year for CogState.

In response to the operational performance CogState's management today announced a plan to take $5 million in costs out of the FY 2019 budget, with some 30 full time staff roles axed, which represents 17% of the headcount.

As a result of the savings the group expects to deliver profit growth in FY 2019 (inclusive of costs related to redundancies) while still investing in what it describes as clinical trials and sales resources.

It would be preferable if they group's operational performance delivered revenue growth to translate into profit growth as CogState maintains that by 2021 the market for cognitive testing will be worth $4.1 billion, with a 33.8% compound growth rate out until then.

These addressable market forecasts are all well and good, but CogState will not be able to cut its way to growth over the medium term, with management uncertain if last year's 10% revenue growth rate will be beaten in FY 2019.

The stock is up 12% to 57 cents today as investors vote for the cost-cutting plan. Importantly the disappointment over its recent performance looks reflected in a valuation less than $60 million or only just over 2x sales.

As an alternative to CogState you could consider a healthcare junior growing profits and revenues at blockbuster rates….

Motley Fool contributor Tom Richardson has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Share Market News

Young woman in yellow striped top with laptop raises arm in victory
Broker Notes

Buy this ASX 300 stock for 20% upside and a 6% yield

Analysts at Bell Potter think investors should be buying this stock before it's too late.

Read more »

IPO written in dark blue with a yellow background.
Financial Shares

ASX fintech stock backed by Mastercard slumps 9% on debut

Meet the ASX's newest fintech company.

Read more »

A young woman smiles as she rides a zip line high above the trees.
Share Gainers

Here are the top 10 ASX 200 shares today

ASX investors kicked off the trading week in style today.

Read more »

young woman reviewing financial reports at desk with multiple computer screens
Broker Notes

Leading brokers name 3 ASX shares to buy today

Here's why brokers believe that now could be the time to snap up these stocks.

Read more »

A businesswoman exhales a deep sigh after receiving bad news, and gets on with it.
Share Fallers

Why Bell Financial, IPD, Megaport, and Resolute Mining shares are falling today

These shares are starting the week in the red. But why?

Read more »

Person pointing at an increasing blue graph which represents a rising share price.
Share Gainers

Why Liberty, Lovisa, Novonix, and SG Fleet shares are storming higher today

These shares are starting the week strongly. But why? Let's find out.

Read more »

Shot of a young businesswoman looking stressed out while working in an office.
Industrials Shares

This ASX share is tumbling 13% on reduced earnings forecast

Earnings are expected to fall in the first half, much to the dismay of the market.

Read more »

A man in his 30s holds his laptop and operates it with his other hand as he has a look of pleasant surprise on his face as though he is learning something new or finding hidden value in something on the screen.
Mergers & Acquisitions

Guess which ASX All Ords stock just rocketed 23% on a $1.2 billion offer

Investors are piling into the ASX All Ords stock amid a $1.2 billion takeover bid.

Read more »