Driver Group, DRV, Slumps 30% on Trading Update – Can They Recover?

Trade Driver Group Shares Your Capital Is At Risk
Tim Worstall
Updated: 29 Mar 2022

Key points:

Driver Group (LON: DRV) shares have slumped 30% this morning on the back of a trading update. The base message is that business isn’t as good as everyone thought it was. As this is new news, something we didn’t know before, clearly this will have an impact on the corporate valuation.

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The big question for us as traders is, of course, what happens next? There, opinions can be more mixed. Driver Groups shares are down some 50% and more from their recent peak in November and December. So there’s clearly some significant worry about the group over and above these currently announced trading difficulties.

The thing about trading announcements like this is the necessity to do a bit of reading between the lines. The actual announcement is that “a difficult second quarter” with a loss-making contract which they still have to perform on. It’s also true that revenues in the Middle East have fallen. Well, these things happen, no business is without risk.

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It’s the other bits that might make us worry a little more. The Chief Financial Officer is off “to pursue other ventures” which sounds either polite or interesting. Except that’s usually code for “‘Ee’s out!” as is the idea that he’s leaving now rather than waiting around to hand over to a successor in an orderly fashion.

As to why that might be there’s also this: “reflecting a significant increase in trade and working capital receivables, particularly in the Middle East regions”. Receivables are what other people ought to be paying us. The thing is to add that together with the fall in revenues from that Middle East region. Something has gone properly wrong there. There’s less business and also what people owe us is rising. Less business and more difficulty collecting the cash we should have. That would indeed be a suitable reason for the CFO to be looking for other ventures.

That’s also not good news for the company of course. That a specific market suffers a hiccup, well, that happens. That we’re seeing a general deterioration in Driver Group’s prospects in a major market segment is something more serious.

That this is structural, not merely cyclical, is shown by what Driver is going to do about this. Reduce headcount by closing marginal offices to save some £1 million in operating expenses. This will allow – and we think this is a lovely phrase – “management to be more selective of its future client base”, or, as it could be put, we’ll only work for people likely to pay us in the future.

The news from Driver Group is indeed bad. That’s why the shares are down this 30% this morning. The question then becomes, well, are they going to be able to pull out of this? The actual reporting period is to March 31 so we’ll know more when they report their results to that date. Until then the Driver Group share price is likely to be driven by how bad – or good of course – people think things are going to be.

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