iSoft shares plummet 30% after revenue downgrade, blames British election

Shares in healthcare software group iSoft have plummeted 30% after the company downgraded its earnings forecast for the second time since reporting its half-year results.

But while the company says the downgrade has been caused by significant delays in major projects, some analysts have attacked chief executive Gary Cohen saying his management style is leading the company astray.

Shares in the company dropped to a year low of 39c yesterday, but have continued to fall this morning to 35c.

In a statement to the Australian Securities Exchange yesterday, Cohen said a number of delays have been caused by political uncertainty in Britain.

“Political uncertainty in the lead up to the recent UK election and the subsequent change in government, have together led to the deferrals of decisions in relation to the English NPfiT program particularly for our partner Computer Sciences Corporation.”

“Typically the Company earns disproportionately higher revenues in the final quarter of the fiscal year. The factors outlined above, which together with currency impacts as a result of the strong Australian dollar, have resulted in revised revenue, EBITDA and cashflow expectations for the period.”

iSoft now expects revenue of between $440-445 million, revised down from an estimate of between $500-520 million.

Additionally, the company now says earnings before interest, tax, depreciation and amortisation will be between $45-60 million “before exceptional items”, a significant decrease from the previous estimate of $106 million.

But the market hasn’t taken the revision lightly. As reported by the AFR, BBY analyst Mark McDonnell said iSoft has been downgraded from a “buy” to “underperform” rating in a note to clients.

“The management weaknesses are most apparent in relation to its inability to provide reliable short-term forecasts of business performance, compounded by its habit of continually blaming factors ‘beyond the control’ of the company for its business reversals, (whether they have currency movements, project delays or foreign elections).”

Deutsche Bank analyst Michael Simotas has also reportedly slammed the company and its reliance on certain computer systems, which put the company at risk.

iSoft was acquired by IBA Health in 2007, adding a significant amount of debt. The company was contacted for comment this morning, but no reply was received before publication.


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