It's barely three months since a cash shortfall announced as part of its Q3 update sent shares in Blancco Technology Group(LSE: BLTG) crashing by 25%.
At the time, the data security firm which specialises in data erasure and computer reuse, said a number of factors (including the slippage of some big contracts) had put pressure on its cash position -- net debt was revised to £5.5m, and the company reckoned it needed £4m "over the coming weeks" to prop up its working capital. A placing which raised approximately £9.45m was the result.
Then on Thursday we had another trading update, revealing a further hole in Blancco's finances. That led to a 20% crash, and as I write the shares are at 118.5p.
This time we hear that "cash flow and net cash are below market expectations due to the non-payment of £3.5m of receivables, the majority undertaken in the prior year". That's led to a charge of £2.2m.
The company has apparently had a bit of a lightbulb moment, speaking of "the group's intention to apply a more prudent approach to revenue and income recognition on this type of contract in the future".
So, wait a minute... it's not until the fan gets heavily soiled that a company with prior cash flow problems realises that being prudent when recognising revenue might actually be a good idea?
At this stage I was going to look at Blancco's fundamentals, but that would be pointless right now when I'm shocked by its apparent inability to see cash flow problems promptly.
A company that suddenly realises it needs urgent cash within weeks to keep going, and still does't recognise the inadequacy of its income recognition policy until several months later... well, that's not a company to which I would trust a penny of my investment cash, whatever the ratios say.
Losing the game?
Today's antics from Blancco reminded me of that other spectacular recent fall, Game Digital(LSE: GMD). Game's shares had been sliding for months when a trading update on 30 June sent them over a cliff -- a 67% crash over the past 12 months to today's 19.5p.
Game's fundamentals actually look decent, with forecasts suggesting a P/E as low as 6.6 for the year ending July 2017 -- although that's a year in which earnings per share are expected to plummet by 80%. The forecast dividend of 1.3p would provide a yield of 6.2%, but in the light of its slashing from 14.7p to 3.4p in in 2016, it's not something I'm going to put much faith in.
Even a mooted 55% EPS recovery in 2018 does not attract me to the shares, and I'll tell you why.
The problem I see is that the retailing of binary digits through actual bricks and mortar stores looks to be an increasingly bad idea -- the same way online distribution of music has killed many a retailer of CDs (or "record shops" as I still like to think of them).
My ISP has just upped my broadband to a nominal 150Mbps (and unlike many, it actually works out better than that -- testing it showed 164Mbps). Why would I want to go all the way to a shop to buy a physical plastic thing when I can have massive digital content downloaded in minutes?
These two shares are beyond the end of my bargepole.
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Alan Oscroft has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.