Merit Group (MRIT ), a data and intelligence business, provided a trading update for the six months ended 30 September 2024 (H1) and the expected performance for the full financial year ending 31 March 2025 (FY25).

Key highlights:

  • H1 revenue is expected to be £9.3 million, a 6% decline from £9.9 million in H1.
  • Adjusted EBITDA for the half year is forecast at £1.2 million, down from £1.8 million in H1.
  • Net debt at the end of September 2024 stood at £2.3 million, with available credit facilities of £3.7 million.
  • Full-year revenue for FY25 is anticipated to be around £18.5 million, an 8% decline year-on-year and 10% below market expectations.
  • Full-year Adjusted EBITDA is expected to fall to £2 million, 40% below expectations, and the company is forecasting a £0.8 million loss before tax, compared to a £1.2 million profit in FY24.

The company's MD&T division (Software & Technology Resourcing) has faced challenges, with revenues down 8.5%, driven by the conclusion of key projects and a lower-than-expected conversion of the sales pipeline.

Despite the current challenges, the Board remains optimistic, citing underlying market demand for data-related technology and the company's steps to strengthen its sales and marketing. The Group anticipates revenue growth returning in FY26, alongside a strong return to profitability.

 

View from Vox:

 

Merit Group's trading update reflects a company facing a challenging period, with a noticeable dip in revenue and profitability. The data and intelligence sector remains robust, but Merit’s MD&T division (focused on technology resourcing) is feeling the effects of macroeconomic headwinds, with clients delaying significant IT investments. This has led to an 8.5% drop in revenue for this division and a weaker-than-expected pipeline conversion.

The company’s forecast for the full financial year (revenue down 8% and EBITDA 40% below expectations) is a significant adjustment. Investors may view the current performance as concerning, particularly with the anticipated £0.8 million loss before tax. While Merit’s net debt remains relatively controlled at £2.3 million, it is a slight increase from the previous year, which may raise questions about cash flow management.

Merit’s management is betting on longer-term growth, particularly in data-related technology, which is expected to see ongoing demand. The company has invested in sales and marketing, and while this is currently weighing on short-term profitability, it could bear fruit in the next 18 months. The company is targeting a return to growth and profitability by FY26, relying on improving market conditions and stronger sales efforts.

While the current results are underwhelming, Merit Group’s strategic moves and focus on future growth could position it well in the coming years. However, patience and a cautious approach are advisable given the near-term pressures.