Following on from the ongoing sorry saga involving the number 2 player in the plumbing supplies market:
Tradelink owner, FBU today went into a trading halt, pending yet another downward revision to its earnings. This time, however, the quantum of the downgrade will leave the company is breach of lending covenants.
This has clear implications for the ability of FBU's various subsidiaries to invest capital into their respective businesses, and Tradelink - having been run on the smell on an oily rage for years - was likely to have been under-capitalised to begin with.
One thing is for sure, if the person running Tradelink went to his bosses and asked,
"Can we please have some capital to upgrade some of our stores, or to expand our product offering, or to invest in programs to improve our customer service?",
... I strongly suspect that the response from FBU Head Office will take the form something like:
"Actually, Jim, funny you should mention capital, because that's something we've been meaning to talk to you about. Because we are having a few... uh... solvency problems here at Head Office, so instead of usgiving youcapital, what we really need is for Tradelink to somehow find some capital to send ourway. We strongly suggest you rationalise some product lines, shut down some marginal stores, tighten credit terms to trade customers and stretch out payments terms to suppliers."
Not exactly the kind of circumstances that lend themselves to remaining super-relevant in the market as a viable competitor to the market gorilla, Reece, I wouldn't have thought.
REH Price at posting:
$9.70 Sentiment: Buy Disclosure: Held
(20min delay)
