Courier firm DX (Group) PLC (LON:DX.) saw its shares fall on Tuesday following news the group has lost a contract with Her Majesty's Passport Office (HMPO) that it has held for 14 years.
The contract is expected to expire in January 2020 so will not affect the results of the current financial year, which ends on 30 June, and the group confirmed it remains on track to deliver results in line with market forecasts this year.
Despite the blow of losing the passport gig, the board believes it has a good shot at achieving existing market forecasts for underlying earnings (EBITDA) of £7.7mln and revenue of £328mln in the year to the end of June 2020.
The board's confident is underpinned by the improving trend in DX's revenue and earnings, in particular DX Freight's increasing run-rate, the slowing rate of attrition from annuity revenue at Document Exchange and momentum within DX Express's Courier activities, as well as the actions that the company will be taking following the non-renewal of the passport contract.
"Having held this contract for 14 years, we are disappointed not to have been successful in our bid, which we believe was based on commercially realistic terms. Over its tenure, DX set new and higher service standards for this important contract, and we are proud of what has been achieved for HMPO,” said Ronald Series, the group's chairman.
"DX's turnaround strategy continues to show encouraging progress, and we are comfortably on track to attain market forecasts for the current financial year. We also believe the company is well-positioned to achieve market forecasts for profitability in the next financial year, even after the non-renewal of the contract. This reflects the significant progress that has been made with DX's turnaround and the momentum in the business,” he added.
In a note to clients, analysts at ‘house’ broker finnCap commented: “We make no changes to our forecasts and reiterate our view that the main issues DX faces are readily fixable by the new, highly experienced management team and there is, therefore, significant share price upside potential.”
finnCap repeated an 18p target price on DX shares which in early afternoon trading were 5.6% lower at 15.30p.
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