Mr Market Axes WDS
Mr Market Axes WDS
Engineering and construction company WDS has had its share price hammered today. The shares are currently trading at 67 cents, down 55% this morning and approximately 70% below the $2.22 year-high of September 2009.
It looks like a massive overreaction to me. This is a construction company. The margins are small and, when relatively small things inevitably go wrong, it can have a huge impact on any one year’s profit. The debt looks manageable, although it is with GE and, given the trouble their lending business is in, I reckon they’ll be asking for their money back if they get a chance.
But you have to chuckle at the timing. In late September last year, WDS raised $45.7m from institutional and retail investors at $1.70 per share. You would think that three months into the year they’d have a pretty good idea that the profit wasn’t looking good. Especially a business dependent on contracted revenues. Either that, or there’s something wrong with the accounting systems.
Less than a month later, with the cash securely in the bank, came the first profit downgrade:
‘It is now expected that the FY10 NPAT will be in the range of $22 - $24 million compared with the reported FY09 NPAT of $20.3 million. WDS notes that this may be lower than market consensus FY10 NPAT level (circa $26 million excluding Titeline acquisition) as that consensus will not have taken the new information into account.’
That was the end of October; only two months before the books would close for the December half. Now it seems even that was wildly optimistic. WDS’s ‘update’ this morning says they broke even for the half year and expect to make a $7m profit for the full-year.
Photon Group pulled the same trick, raising $114m from investors midway through last year and then following it up with an extremely disappointing six months. No doubt there are more to come – be wary of those companies that needed your money over the past six months. Perhaps repaying debt wasn’t the only reason they asked for it.
As an aside, at the 2009 AGM, Chairman Jim McDonald was harping on about the company’s corporate governance. Apparently the company was ‘awarded with a “five-star rating” for demonstrating exemplary corporate governance, from a total of 150 mid-cap companies assessed by, and reported in, the 2009 WHK Horwath Mid-Cap Report.’
Just goes to show how much those 10 pages in the annual report are worth.
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A similar situation happened over at Nomad (NOD).
A saying comes to mind: "Never assume malice where incompetence suffices."
Steve, you have highlighted a growing and very concerning problem.
The owners of companies expect the people running their company (the directors and senior management) to tell the story the way it REALLY is.
The 55% share price collapse seems like an over reaction to me. The share register is very concentrated and rarely traded. So the large insto's needed to heavily discount the price to get there large holdings sold.
Yeah but the governance study is simply a checklist of quantitative factors - i.e. are there a majority of independent directors on the board, how frequently does the board meet, etc etc. There's nothing to say you can't have all the correct structures and still have a board make bad decisions.
Still, you would have to think the board was fully aware of the situation yet chose to withold the information from shareholders (a la Allco, Babcock etc).
What else could you expect from a Macquarie Bank float?
Just about everything they tart up and flog to the public is a complete dud within 3 years.
When they try to sell you something run a mile.
This whole thing stinks of fraud to me. I am one of the original investors that got the Company off the ground. Then I became one of the many suckers who bought a heap of "new" shares offered to existing shareholders late last year at the "discounted" price of $1.70, based on their wonderful profit and outlook forecast by their CEO. Then a couple of months later those same shares are now worth 50c because of an impending low profit that they didn't "see" coming. ASIC should investigate this thoroughly and shareholders should take the first opportunity to throw out the whole incompetent and possibly corrupt board and management. They stole my money under false pretences.
I also participated in the SPP at $1.70. They announced their profit downgrade two days after I had submitted my money, the stock dropped about 11%. As you can imagine, I was very, very annoyed. You ask me for money at a particular price, THEN you give a profit downgrade! This type of behaviour made my mind up to sell the shares as soon as I could, I've subsequently sold them at a small loss. If they treat shareholders like this, then I don't want any part of this company.
I think you were very wise to dump the shares Damian. I'm still stuck with mine unfortunately and they are now worth $75,000.00 less than when I bought them.
Their whole reason for raising the capital was a sham anyway. Why the hell would you spend over $30,000,000.00 buying an ailing Company that only has ONE customer?? I wonder how many of those in charge of WDS were part owners of the mob they bought out?
Wasn't JB Hi Fi a Macquarie Float?
I feel some sympathy for you Phil, I did think this was a company with good prospects before their recent behaviour with the SPP. I think I was a bit lucky to get out before their big fall, I was just so annoyed at the management's treatment of shareholders. I think they do have some good prospects in the long term. It's noticeable that there is some weakness in those companies that service the mining, oil and gas sector (recent announcements from Ausenco and Worley Parsons), but I think if the global economy improves these projects could come back.
Well looky here, another trading halt, this time for a "Management Changes" announcement. I wonder if the "Management Change" will be to go into administration?
Received a phone call from WDS in response to my query.....they think WDS has lot to do to turn things around and they are not bursting soon... hope so.
[...] already had a rant about the disgraceful lack of disclosure around last year’s capital raisings for Photon Group [...]
There was a large exodus from wds. Most of the experienced project team responsible for pipeline constructions has moved to Clough. What happens when you lose the people that win and deliver the projects... the company tumbles.
Hold onto your hats, WDS is in yet another trading halt, this time for 6 days! This can only be a) A takeover offer b)Bankruptcy preparation c) Mass suicide by the incompetents on the Board d) Signing of a vastly lucrative Contract. Any wagers??
Phewwww! Turns out it was just to announce the expected $7m profit will now be a $7m loss. Only another $14m turnaround down the slippery slope to bankruptcy. Jeez, I thought it might have been serious or something. It's funny, I had the same thoughts watching the Titanic sinking in the movie that I'm having now about WDS. What a wonderful buy that Titeline Energy turned out to be. Such exquisite timing.
In response to most of the comments and having worked for WDS there is no doubt managment is not retaining qualified/experienced staff at all levels. I could relate to the poor project management, but not on this forum. Corporate governance/good management accolades are a myth. Wise external advice I was given before I started "don't expect to work long term". The advice went, Diversified, as it was pre WDS, "cannot continue to exist unless the company gets there own work instead of buying companies for the work they already have on the books, and unable to follow up with new contracts". Mismanagment/ poor project managment sees a shift of very capable experienced skills base to the opposition.
Summed up:
You're dumb to buy a Holden Commodore on hire purchase flog it around a paddock, put a P plater behind the wheel and exepct to win a grand prix or F1 drivers championship, akin to paying .39Cents a share and try to succeed in O&G with poor project managment and no goodwill.
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