Craneware shares slump after trading update leads to warning

THE shine came off stock market darling Craneware yesterday as shares in the Edinburgh-based software firm plunged by a third following a “negative” first-half trading update.

The company, which writes billing software for hospitals in the United States, has featured prominently among the technology stocks hotly tipped by analysts in recent years.

But the firm yesterday warned that the performance of InSight – the American business Craneware bought in February for £12 million – had fallen short of the board’s expectations.

Craneware is also considering legal action after losing a large InSight contract administered by a third party, which will wipe some $700,000 (£453,000) off its forecast first-half profits of $5.3m.

The Scots company also believes that its customers have been choosing to buy software for other hospital systems in order to qualify for subsidies from the US government.

The deadline for such purchases passed on 31 December and Craneware assures its sales should return to normal in the second-half of its financial year.

Despite the setbacks, the software house still expects to hit targets for 12 per cent revenue growth in the six months to 31 December and to match last year’s interim profit of $4.6m. Half-year results will be unveiled on 28 February.

Chief executive Keith Neilson said: “Whilst this has been a challenging trading period, the strength of our product suite means we are well placed to help our customers deal with their increasing fiscal and regulatory pressures as fines and recoveries appear on their public financial statements for the first time.

“This, combined with the size of our opportunity pipeline, means we continue to look to the future with confidence.”

James Goodman, an analyst at Investec Securities, cut his recommendation on Craneware from “buy” to “hold” following its “negative update”, warning that the firm had “too much to do” in the second half to meet its full-year forecasts.

But Paul Morland at housebroker Peel Hunt remained upbeat. He said: “Finding an extra $10m of sales [in the second half to hit full-year targets] will be challenging. Management believes this can be achieved and its exemplary track record suggests that the market may give it the benefit of the doubt.”

Numis Securities analyst Will Wallis added: “Management expects to sign very substantial orders in the second half through large channel partner deals. Investors must take a view on whether these can be delivered.”