Why Yu Group shares just surged 170%

Down 95% in less than one year, this former AIM star just made lucky bargain hunters a massive profit.

On a day when bargain hunting investors were snapping up Royal Mail (LSE:RMG), Vodafone (LSE:VOD) and Metro Bank (LSE:MTRO) shares after recent falls, AIM-listed Yu Group (LSE:YU.) stole a march on them all to become this morning's most traded stock on the interactive investor platform.

The flurry of excitement surrounding the supplier of energy and water to small businesses caused shares to more than double, reversing some of the losses seen since October's disclosure of a £10 million mis-calculation in its accounts.

Today's share price bounce reflects relief that, following an ongoing review, annual losses should be no worse than previously expected at around £7.5 million for 2018. Chief executive Bobby Kalar, who owns more than half the company, adds that "significant actions" have already been taken as he looks to put the Nottingham-based business back on track.

As well as today's AIM buying interest, it appears that trading volumes in Yu have been supported by investors keen to lock in profits after taking a punt on the shares at previous lows.

Interactive investor trading data this morning shows a 57%-43% split in favour of 'buys'. For the record, Royal Mail was attracting 90% buys with Vodafone at 78% and Metro Bank at 82%.

Even at today's high of 180p, up from a day low of 66.5p, Yu shares remain a far cry from the near-1,400p peak achieved last March after a meteoric rise for the stock since joining AIM in 2016.

Source: TradingView four-hour chart (*) Past performance is not a guide to future performance

The shares were already heading south prior to October's revelation of the £10 million black-hole, with a subsequent review confirming there were "serious historic failures in the systems and processes with the group's finance function".

This resulted in a £6.4 million impairment of the September 2018 balances of trade debtors and a £1.3 million increase in the bad debt provision. There was a further £1 million related to accruals and fixed assets.

A detailed review of the company's finances will continue until the finalisation of its 2018 accounts and audit expected in the second quarter of this year.

Yu generated revenues of about £80 million in 2018, with more than £85 million already contracted for this financial year. Yu held cash of £14.6 million at the end of 2018, while it is debt free. The company said it continues to attract new customers and employees.

Kalar said today: "With a strong balance sheet and a focussed and dedicated workforce, I remain confident in the underlying business, the significant market opportunity available to us, and the long-term success of our proposition."

*Horizontal lines on charts represent levels of previous technical support and resistance. Trendlines are marked in red.