Why the Gentrack share price could sink lower today

The Gentrack Group Ltd (ASX:GTK) share price could sink lower today after warning of tougher than expected trading conditions…

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The Gentrack Group Ltd (ASX: GTK) share price looks set to come under pressure again on Wednesday after the release of another disappointing market update.

The essential software provider's shares fell heavily in 2019 following a series of downgrades to its earnings guidance.

Tough trading conditions in the UK market ultimately led to Gentrack posting a 20% decline in EBITDA to NZ$24.8 million for the 12 months ended September 30. This was significantly lower than its original target for 15% growth in EBITDA.

Will FY 2020 be any better?

Late last year Gentrack revealed that uncertainty in the UK market meant that its outlook for FY 2020 was for a broadly flat result.

Unfortunately for shareholders, it appears as though management's guidance was overly ambitious once again and 2020 will be another difficult year for the company.

This morning the company advised that it continues to experience difficult market conditions in its key utilities markets. This is negatively impacting its sales pipeline to a greater degree than management previously expected.

In addition to this, UK utility giant E.ON has indicated that it intends to suspend the deployment of its new Gentrack billing platform. Instead it will focus resources on the integration of the recently acquired Npower business.

What now?

Gentrack advised that it is now "assessing the financial implications of both the broader adverse market conditions and E.ON's decision."

It has held off downgrading its FY 2020 outlook for the time being, but a downgrade appears to be coming in the very near future.

"A detailed reforecasting exercise has been initiated. A further announcement, including an updated FY20 Outlook, will be provided to the markets as soon as that process has been completed, which is expected to be within a week of this announcement," it concluded.

Motley Fool contributor James Mickleboro 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.

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