Sell Spectra7 Microsystems, Cannaccord Genuity says

“Abysmal” first quarter sales have Canaccord Genuity analyst Robert Young pulling the plug on Spectra7 Microsystems (Spectra7 Microsystems Stock Quote, Chart, News: TSX:SEV).

In a research update to clients today, Young reduced his rating on SEV from “Hold” to “Sell” and cut his one-year price target on the stock from $0.20 to $0.15, implying a return of negative 11.8 per cent at the time of publication.

This morning, Spectra7 reported its Q1, 2018 results. The company lost $4.52-million on revenue of $900,000, a topline that was down 69 per cent compared to the same period last year.

“As anticipated when we released our fiscal 2017 results, demand for our VR and MR solutions was particularly weak following the strong holiday season,” CEO Raouf Halim said. “We continue to hold a dominant position in the tethered VR and MR markets, and expect a stronger second half of 2018. We are encouraged by the continued increase of prototype data centre revenues and believe the production ramp of our data centre solutions will contribute meaningful revenue during the second half of 2018.”

Young says the company is facing down a critical time in its history.

“We are downgrading Spectra7 to a SELL (from a HOLD) on continuing concerns around the company’s liquidity risk,” the analyst says. The company closed Q1 with $0.3M of cash on the balance sheet, compared to our previously modeled $4.4M. The company has stated that it is actively exploring financing opportunities, which is to be expected given an average quarterly cash burn rate of ~$(2.0)M. Management has indicated it is in the process of securing funding, and expects to resolve liquidity issues in the next four weeks while managing working capital aggressively in the meantime.”

Young is now modeling EBITDA of (U.S.) negative $8.1-million on sales of $10.7-million in fiscal 2018. In 2019, the analyst thinks Spectra7 will generate EBITDA of negative $4.7-million on a topline of $21.0-million.