Shares in education group, Vocation (VET) more than halved in trading on the ASX yesterday after the company finally stopped spinning and produced the real story on its falling out with its major client, the Victorian Government.
The shares plunged $1.30 to close at 99.5 cents, a fall of more than 56% – they lost 47% in the first minutes of trading as investors gave Vocation the thumbs down (more like something rudder, actually) after its statement late on Monday night which finally cleared the air with about its recent dealings with the Victorian Government.
The company requested a trading halt last Thursday when the shares were trading at $2.29.
The shares had been as high as $3.35 in the wake of the float in September, so there will be some very unhappy investors who held on to the shares and are now nursing whacking great losses.
In Monday night’s statement, it admitted it has been stripped of almost $20 million in funding by the Victorian government.
As a result, the company has also been forced into an embarrassing back-down on a previous hardline stance that a review into one of its main profit centres would end up being immaterial. That was comprehensively undone by the move by the Victorian government.
Vocation, which raised $74 million in a placement to institutions at $3.05 a share in early September, said it would be forced to forfeit $19.6 million of funds after a commercial settlement with the Victorian government.
The settlement came after a lengthy review by the Victorian Department of Education into two of Vocation’s registered training organisations in Victoria, BAWM and Aspin.
VET YTD – Vocation hammered
Vocation over the past few weeks has maintained in statements to the ASX that neither the review nor the anticipated outcomes were expected to be material.
Vocation managing director Mark Hutchinson revealed that while it would be allowed to keep $9 million of government funding, the overall impact would be a $5 million hit to earnings in 2014-15.
Vocation said it now expects full-year EBITDA to be between $53 million and $57 million for 2014-15, which is 10% to 15% under market consensus earnings forecasts.
Vocation will now undertake a heavy restructuring of its Victorian operations, scrapping the use of third-party training and assessment providers, and restructuring management.
The review identified problems where third parties had enrolled and trained students in courses that were “inappropriate” for their needs and of a low quality. It’s believed that more than 6000 students could be affected, and will most likely have to be reimbursed and retrained, which will be very expensive. Mr Hutchinson said this would result in “short-term pain” but reduce the overall risks in the business.
“The department took a dim view on some of the quality that was provided.”
The move by the Victorian government supports the reporting of this story from The Australian Financial Review which has maintained the situation was worse than what Vocation had been telling the market.
The market reaction yesterday agreed with the AFR’s view, not with that of the company or Mr Hutchinson.
ASIC said yesterday it was closely monitoring the situation as part of its market surveillance activities.
“In general, we expect companies to abide by their continuous disclosure obligations, which are designed to ensure that investors have equal access to material information at the same time,” a spokesman told The Australian.
