Orion Health trajectory 'not sustainable' analyst warns
Software firm Orion Health is "running on empty" and will need to downsize its business, which currently employs 1200 staff, Forsyth Barr has warned in a research note.
Forsyth Barr slashed its fair-value estimate of Orion shares from $2.70 to $1.50 in the wake of a warning from the Auckland company that its annual revenues would fall in its financial year just closed, and that it expected to turn in a $32 million to $38m pre-tax loss.
Orion's shares fell 14 per cent to $1.66 on Monday in the wake of the business update and then dropped another 14 per cent to a record low of $1.42 in trading on Tuesday.
Analyst Blair Galpin said Orion's financial update made for "grim reading" and the company would need to reduce its cost base.
But "working through the employment process" would take time, he said.
"Given Orion Health's current cash burn rate it doesn't have the balance sheet to provide it with the time a restructuring would require," Galpin warned.
"Hard decisions" would have to be made, he said.
Galpin said the fact Orion's software was now being used to manage the health records of more than 100 million people around the world meant there was value in its existing contracts.
But he forecast customers would be wary about doing new business with Orion "unless business stability is assured".
"A major concern is potential customer perception. If we were a customer looking at selecting a new supplier to be the foundation of our IT system – a multi-year partner – business sustainability would be a key criteria; Orion Health wouldn't pass this test.
"We believe new customers will be wary of signing with Orion Health for any significant contract commitment. If we were competing with Orion Health for contracts we would also point to this risk as a major concern," he said.
Orion has signalled it is looking for a capital injection from new investors.
But Forsyth Barr said the fact it had left that "until the point at which it has almost exhausted its cash balance", meant the terms of any deal carried a "significant risk" of diluting the shareholdings of existing investors. Orion forecast it would end the financial year with between $2m and $6m in cash.
Orion Health spokeswoman Sarah Putt said it had no comment on the research note.