Intercede Shares, IGP, Down 20% On Contract Win – What’s Happening Here?

Trade Intercede Shares Your Capital Is At Risk
Tim Worstall
Updated: 5 Apr 2022

Key points:

  • Intercede Group has announced a contract win, but the shares are down 20%
  • What’s happening here then, surely this is good news?
  • The trading update shows that revenue will be 9% below expectations
  • Intercede Shares Gain After Receiving $3.4m Order

Intercede Group (LON: IGP) shares are today’s example of that great stock market maxim – it’s new news which changes share prices. Intercede has announced that they’ve a new contract win which, is, obviously, nice. But it’s odd for a share price to fall 20% on good news. So what is it that is happening here?

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The answer is that we all thought Intercede’s results for the current year would be some one number (toward £11 million revenue). Intercede has now announced that they’re likely to be £9.9 to £10 million, some 9% lower than expectations. Which is where that efficient markets hypothesis comes into play. The information we had about Intercede – that £11 million – was already in the share price. Now we have got this new information which must be added in, so, the share price falls.

It’s possible to think that this is all a bit overdone of course. A 20% drop on a 9% revenue fall? But think about what the business activity at Intercede Group actually is. “Digital identity, credential management, secure mobility” is a pretty sexy field to be in these days. Everyone’s realising that the corporate systems have to be available to those who work for the company and not to those who don’t. So the field should be booming – indeed it is. Not being able to increase revenues against such a background isn’t a great sign if we’re honest about it.

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But there’s more. The company also says that “delays have been experienced” with a number of new opportunities. What this really means is that it’s getting more difficult to close a sale. That’s also not a great leading indicator either for the company or the sector. If people are willing to delay signing up, then what is being sold is clearly not being seen as mission critical. That’s possibly more of a weight upon Intercede shares than anything else.

It’s also one of those things that doesn’t end with the financial period – that March 31 year-end. One of those things, if people were delaying decision making for the past few months then what’s to stop them delaying again these few months?

Finally, in this trading update there’s one for the connoisseurs of the art. Yes, there’s the announcement of the contract win – and also of the revenue falling short of expectations. The contract win is for $300k – under 30% of the revenue shortfall. So, while it’s of course interesting there’s a certain thought that it’s put into the release simply in order to have some good news. After all, a $300k contract win in a $12 to $13 (depends upon FX rates) million business isn’t normally thought of as material, important enough to gain its own information release. But then that, of course, could be thought of as a cynical reaction.

The reason Intercede shares are down is because of that revenue shortfall against expectations. They could stay down, given the implications of the difficulty in closing business – it depends upon what the market thinks about future prospects.

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