Mixed fortunes for St Ives and entu (UK)

How fortunes change. Marketing services firm St Ives's impressive recovery after the financial crisis was undone by a series of major profit warnings since April last year. Early success at home improvements minnow and 2014 IPO entu (UK) proved fleeting, too. Market reaction to latest news Wednesday could not be more different, but is there a lesson to be learned, here?

Global economic uncertainty was blamed for a spectacular crash at St Ives in April 2016. It scared away clients at its strategic marketing division, forcing a wave of cost-cutting.

Nine months later, we heard that replacing cancelled work was taking longer than expected. Crash! Then, in February, chief executive Matt Armitage said he wouldn't "chase volume at uneconomic prices," and promised "decisive action," which many took to mean the sale of its shrinking books business.

St Ives shares continued to drift lower, eventually bottoming out at 37.5p late yesterday, an all-time low. But, a week after pocketing £4.2 million from the sale of property in Cornwall, its luck has changed.

Shares in the £50 million company rocketed as much as 33% Wednesday, from 39p to 52p. Fifteen months ago they were worth over 240p.

A trading update talks of a "much improved performance" in the first four months of the second half, keeping the business on track for the full-year. In strategic marketing, four-month revenue is up 12%, or 7% at constant currency, and operating margin has improved "significantly".

Revenue rose 12% at the books business, too, although that's down on first-half growth of 15%, and margins remain under pressure. A flat four months at Marketing Activation unit, held back by problems in the core grocery market – St Ives is re-pitching the Sainsbury's contract - compared well with a 3% first-half decline.

"The balance sheet remains sound and we have the necessary cash flow capabilities to support our investment priorities and to further reduce debt," added the firm.

Analysts at Peel Hunt are clearly impressed. Malcolm Morgan has upgraded profit forecasts by £1 million to £22.4 million, giving a 0.5p uplift to earnings per share (EPS), now at 12.3p for the year to July 2017.

He still thinks the shares are worth 90p, implying 80% upside. And, even at that price, St Ives would trade on just seven times forward earnings. It's four times currently.

The bulls were out at N+1 Singer, too, with the broker upgraded its rating from 'hold' to 'buy', with 60p price target. However, there could be much more here if management does its job.

"Further disposals would improve sentiment and focus significantly and would likely drive the share price into three figures," said Singer.

But as the sound of high-fives echoed around St Ives Blackfriars HQ, there are glum faces again at Manchester-based window and door supplier entu (UK).

Like St Ives, it, too, had bounced back from an absolute drubbing, which culminated last autumn in a low of 15p. They had peaked at 147p just six months after their IPO in October 2014.

But, after almost doubling between October and April to 29p, entu shares have plunged again, this time by 32% to 18p.

Problems at its solar division had already caused the company to rethink a promised lucrative dividend policy. Now, "operational issues" flagged in March "extend further into the supply chain than expected".

That means they'll take longer to fix than first thought, and that entu has had to hold fit capacity at current levels. We're told to expect an underlying loss of £1.2-2.2 million, or £2.5-3.5 million after accounting for restructuring and finance costs.

Clearly, St Ives is not out of the woods and it remains vulnerable. However, a cash windfall from the property sale - there's also another site it could offload - plenty more cost-cutting to come, plus trading momentum, gives it a better chance of avoiding the same fate as entu.

This article is for information and discussion purposes only and does not form a recommendation to invest or otherwise. The value of an investment may fall. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.