Last week Dignitana lost a quarter of its value in one day. This came after a press release titled ‘Dignitana clarifies the company’s position’. On different forums the have been a more and more sour debate on the company before and after the release. The debate has many themes – some more, some less serious. The most serious is lack of prober information, on which I will focus.
The art of (market) communication
In the best of all worlds, full transparency into companies makes investors safe and makes markets work. You and I need to know a lot before investing. Otherwise, we cannot judge the investment opportunity and the validity of the investment. This is why there are obligations for listed companies to report regularly and not hesitate to give market information, which will affect the pricing of the company. Investors can then make their choices accordingly.
In the real world, however there is a number of limitations to full transparency when it comes to small companies with one or two products. Some has to do with competitors. No company wants the competitors to gain an upper hand on basis of information they provide themselves in order to make the company transparent to investors. This will make an unfair competition between listed and unlisted companies.
Then there is the ability of the company to provide the market information. The information requirements for companies listed on First North and Aktietorget are less strict than on main lists because it often requires specialized competencies to deliver first class market information. Often small companies does not have this competence in-house – and cannot afford to buy it.
No doubt, there is a lot of debate on the art of (market) communication. It is not specifically about Dignitana but on smaller companies in general.
Now, let us take a closer look at the communication from Dignitana. First, there is a press release from 29th September on production halt which cots 4 MSEK in lost sales in Q3 and Q4. The title is “Dignitana revises 2017 projections following production delays”. Secondly, there is a release titled “Clarification on the company’s position” from 10th October. In my view, the first amateurish release caused the second. Simply because it raised more questions than it answered.
First question raised by the September-release is this: how does the lost sales affect the possibility for break-even? The reader asks this question because most readers are investors as well. Second question: what are the ‘2017 projections’? When the headline reads, “Dignitana revises 2017 projections following production delays” we must expect both the projections and the revised to be present in the text. They are not. Fundamentally this awful and amateurish communication. It does not address the readers nor does it give the information it pretends. Worst thing is that Dignitana has hired an external communication provider unlike many other small companies. It really gives no credit to Trägårdh Kommunikation.
Then the new release. It stated that break even moves from start-2018 to end-2018. That the projected number of installed systems in 2017 will be 130 and not 200 as hitherto said. There is a next-generation system ready in 2018 and that of the loan of 2.5 M$ from Union Business Leasing, 1.5 M$ has been used for expansion in the US and that the company considers different possibilities to secure funding for the future. ‘When everything else fails, try the truth’ seems finally to be the motto.
Dignitana will get there
I think we could have avoided this heavy fall, if the company in the Q2 report had told about the situation. This is really an own goal the company made by its amateurish communication … and investors pay heavily.
Personally, I favour conservative projections and open communication, since they gives higher possibility of upwards revisions throughout the year. Fundamentally, there are no crisis in Dignitana. At least not to justify such a heavy fall in share price.
If we look at the company today, growth is high, the business model in the US seems to work, and we see orders from other parts of the world. Dignitana has nothing to hide, market penetration takes time, that’s all.
Find my latest post on Dignitana, dating between the two releases, here