Sun sets on Entu's solar division

It's been less than a year since Entu (UK) floated on AIM, but it's already lost 60% of its market value and the promise of fat dividends has been somewhat deflated. It's all down to the struggling solar division, which the Manchester-based supplier of home improvement and energy efficiency products firm has decided to scrap after issuing a profits warning.

Management, which had expected the solar unit to make £1.6 million this year, now thinks it will lose over £2 million, which will cut operating profit from continuing operations for the year ending 31 October 2015 to £8 million. This isn't the first time Entu has flagged problems in its solar division. Weakness in the first half of the year was expected to be offset by trading in the historically stronger months of July and August, but this failed to materialise.

Rumours that VAT for solar products could be increased from 5% to 20%, plus a recent government proposal to slash the level of feed-in tariffs from January next year, have also proved a nail in the division's coffin.

"The board does not believe that its solar business is likely to make an acceptable return on investment in the medium term and therefore, after fulfilling all current obligations, Entu will discontinue its retail solar activities in a controlled manner," it said Tuesday.

"The prospects for our solar business have deteriorated dramatically over the last six months, and we have taken a decision which I have no doubt will be seen to be correct. However we have disappointed our shareholders and I can only assure them that we are entirely focused on restoring earnings, dividends and shareholder value."

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Chiefs have tried to reassure investors their "core" strategy is unchanged, as the group tried to drive organic growth from its portfolio, corporate contracts and acquisitions. "Difficulties in its Solar business notwithstanding, the board remains confident of the future prospects of the company's continuing activities, comprising home improvement products, insulation products, boilers and repairs and renewals cover plans, which continue to trade in line with management's expectations," they say. "As previously announced, these activities have the benefit of a substantial forward order book in excess of £30 million."

Touted as a "Dividend King" for its intention at IPO to generate an 8% dividend yield based on its 100p placing price, the group's shareholder pay-out is clearly under threat. After flagging an interim dividend of 2.67p last month, management repeated its promise at flotation to pay a final dividend of 5.33p, taking the total pay-out for the year to 8p per share. Now, the group has warned this second payment will be cut to around 2.67p, taking the total dividend to 5.34p.

After crashing by over a third, Entu is trading 60% below its 12-month high of 147p. This fall in market value has increased the dividend yield to 8.2%, although it has fallen to 5.3% on its IPO price.

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