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Equiniti tips into the red as it highlights challenging trading

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Equiniti Group PLC (LON:EQN) shares sank on Friday as the admin services and outsourcing firm said despite a seasonal acceleration in its fourth quarter, the trading environment continued to be “very challenging” and expected it to remain so for the rest of the year.

In a trading update for the period from July 1 to November 5, the company said while non-discretionary, long-term contracts accounting for around 75% of its revenue have been sustained, the “ongoing disruption to capital markets and the wider economy” has continued to hold back any material recovery in revenues.

Equiniti said around half of its discretionary revenues remained impacted, and although order intake was 33% ahead of last year and 48% of all business, the translation of these orders into a meaningful revenue increase was “not expected in the current financial year”.

The firm added that it has implemented measures to reduce operating costs with an in-year reduction of £16mln, while a reduction in net debt is also expected over the second half.

Looking ahead, Equiniti said while its underlying business remained resilient, market-paid and discretionary revenues will” continue to be affected by the continuing disruption to capital markets and the reduction in central bank interest rates”.

As a result, the company forecast full year underlying earnings (EBITDA) of between £93-£97mln, down from £136mln last year, and revenue of between £480-£490mln compared to £555.7mln in 2019.

The group also said it has a “significant backlog of orders”, with sales in October ahead of the prior year by 48%.

“Non-discretionary revenues and prices remain sustainable, and the board remains confident with the resilience and sustainability of all recurring business lines”, Equiniti said, adding that further revenue and EBITDA progression is expected once market conditions normalised.

“Current trading continues to be difficult, although we are seeing the usual acceleration into [the fourth quarter].  We continue to make strategic progress as evidenced by our strong order intake and resilient financial position, but pending any recovery in our markets we continue to tightly manage costs and cash flow through this now extended period of disruption”, chief executive Guy Wakeley said in a statement.

In a note on Friday, analysts at Equiniti’s house broker Liberum cut their target price for the firm to 160p from 200p and retained their ‘buy’ rating, saying the trading update was weaker than they had expected.

However, Liberum’s analysts said despite the update they saw “a number of reasons to be optimistic about the outlook”, highlighting the company’s “combination of strong client retention with a number of large client wins”.

“We remain confident in the group’s ability to deliver on the long-term growth opportunities presented to it, and believe that the [free cash flow] potential of the group remains overly discounted”, the broker added.

Shares in Equiniti fell 4.9% to 98.5p in mid-morning trading.

–Adds broker change and updates share price–

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