Investors still need to see if this company can be turned...

Investors still need to see if this company can be turned around.

Last year the signs were there with a $4m profit (although this was lower than analysts’ expectations of $10m). But it looked like the first stages of the turnaround were coming.

However then we had the earnings warning after the AGM, which put a dent in the recovery timeframe. $2.5m down for the first 4 months doesn’t sound too much, but when you only made $4m net profit the prior year, you’d have to be a little worried … add in currency and economic worries, the departure of the US president, the failure of Quiksilver, etc.., - these are all likely weighing on investors’ minds.

So the worry is is that the half year result in February may not show that the turnaround is gaining traction, but potentially being dented. At best it may show figures similar to last year or at worse down by $3-4 million+. Investors need to see the half years improving and on a consistent basis and it may take the Full Year result and beyond to see this.

The second half result (or Full Year) hopefully will show signs of cost savings and the company’s various strategies impacting favourably and that they are addressing USD and economic impacts. But that’s another long wait until August.



On the plus side there is huge potential if they can get it right.

They are looking at long term EBITDA margins of 15%. Now say on $1 billion of sales that gives EBITDA of $150 million, less depreciation and interest of say $60 million that gives a net profit of around $90 million.
Apply a P/E of 15 and that gives a market cap of around $1.4 billion and $7 a share and the potential for dividends of 10/20/30 cents per share (depending on if they repay debt)…, but that is long term and if they get it right.
Right now we are on a P/E of 80+. If they make $10 million this year, that’s still a P/E of 35 on the current share-price.

I guess in summary, there’s potential there, but it may still take a while to see it realised (or not).
If the half year is worse than expectations, then investors’ expectations of the turnaround will likely be pushed out and the share price may be hit further. However if the result surprises favorably (and I think it would have to be a good surprise i.e. numbers similar or higher than last year) then the share price may recover.

Seb