Desmond-backed Datalex’s shares slump on profit warning

Datalex shares slumped by 59 per cent on Tuesday after the Dermot Desmond-backed travel software company issued a shock profit warning and revealed it may have misstated revenues in relation to a major customer, known to be Lufthansa, in the first half of last year.

Sources said the Dublin-listed company, led by chief executive Aidan Brogan, has hired accountancy firm PwC to undertake an independent review of the issue.

A spokesman for Datalex declined to name either the customer or the accountancy firm it had enlisted. A spokesman for German airline group Lufthansa and a spokeswoman for PwC each declined to comment.

Datalex warned on Tuesday that it now expected to report an adjusted earnings before interest, tax, depreciation and amortisation (ebitda) loss of between $1 million (€870,000) and $4 million, compared with the consensus view among analyst for an almost $16 million profit. This represents a difference of as much as $20 million.

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The company, in which Mr Desmond is the largest shareholder with a 26.4 per cent stake, said this was mainly due to its “failure to recover costs incurred in the delivery of the services revenue component of a significant customer deployment”, and that talks with the client were ongoing.

The Irish Times has established that this relates to Lufthansa contracting Datalex in 2016 to help overhaul its online offering and that the Irish company had an overly optimistic view on the costs, which had been running above estimates, that it could recover from the airline.

Revenue

Meanwhile, the company also said that it considered that its reported adjusted ebitda and profit for the first half of 2018 “may have been misstated principally due to the accelerated recognition of revenue associated with the significant customer deployment”.

As a result, certain revenue that was expected to be booked by the company in 2018 will now not be recognised until this year and 2020, it said. The first phase of the new Lufthansa digital commerce platform is expected to go live next month.

Former National Asset Management Agency chief financial officer Donal Rooney became Datalex's new finance chief last month.

Datalex’s market value slumped to €78 million on Tuesday, its lowest level since November 2013.

“Today’s announcement is extremely disappointing for me personally, for the team at Datalex and for our supportive shareholders,” said Mr Brogan. “For my part, I can assure all our stakeholders that we have already identified certain key areas that require improvement and are taking corrective action. The fundamentals of the business remain strong. We are confident this is a once off and we will return to profitability in 2019.”

Davy analyst Ross Harvey moved quickly after the announcement to pull his 'overweight' recommendation – the equivalent of a 'buy' – on Datalex's stock, saying his ratings and forecasts were under review. Goodbody Stockbrokers took a similar stance.