Surfstitch shares jumped yesterday on news that the CEO Justin Cameron had quit and was preparing to take the company he founded private, in partnership with private equity.
The company was floated 15 months ago and has been an under-performer in recent weeks thanks to a surprise earnings downgrade with the interim results in late February.
The shares jumped 15% to $1.37 in early trade and then settled back to around $1.32, well below the high of $2.13 hit last November.
Analysts say any takeover bid would have to be in the region of $2 a share, the same level of a capital raising in November.
But the shares had fallen around 40% after it abandoned its earnings guidance. They fell to 99 cents a week or so ago, a cent under their December 2014 float price of $1.
The private equity firm Cameron is working with hasn’t been named but Fairfax Media says it could be US group TSG Consumer Partners which apparently invests in middle-market consumer and retail companies.
From all reports it was a confusing morning with Cameron tendering his resignation by email to chairman Howard McDonald who is now effectively running the company on a day to day basis. He is a former chair of Myer and ex CEO of Pacific Brands.
Mr Cameron was still within his initial fixed two year appointment period and this raises doubts on whether he can resign in the manner that he did.
Media reports yesterday and this morning say there is something odd about what had happened at the company (http://www.smh.com.au/business/retail/surfstitch-chief-has-gone-rogue-20160310-gnfawf.html).
The bottom line is that just weeks after downgrading earnings, Mr Cameron dropped a bombshell by resigning to pursue a private equity buyout of the group.
SurfStitch said yesterday it understands Mr Cameron is pursuing a potential acquisition of the business in conjunction with private equity.
“The company stresses that it has not, to date, received any formal or informal proposal from, nor has it had any discussions with, private equity in relation to any potential acquisition,” Surfstitch said in a statement to the ASX.
The company was formed by Mr Cameron and a man called Lex Pdtersen. Pedersen ran Surfection, the well-known surfwear shop chain, and Cameron was an investment banker and research analyst.
In the December half year results, revenue was up 40% to $144.9 million and profit was $5.7 million as it reinvests in the business to try and get faster growth. Revenue from North America was up 63% to $24.1 million.
And while the company is forecasting continued strong double digit revenue growth, it said in its profit announcement that it was no longer providing earnings growth, saying: “Given the pace of change and long term opportunities presented to the business, management and the board believe it is no longer prudent to focus on a defined EBITDA (earnings before interest, tax, depreciation and amortisation) range”.
That didn’t go down well with the shareholders who took shares in last November’s issue at $2 a share, or other holders, given the slump in the price. Nor will they have been impressed by yesterday’s antics from the former CEO. Some analysts are asking if the abandonment of the earnings guidance targets was a way of undermining the share price to make any privatisation of the company look more attractive.
Mr Cameron has done deals with the company in the past. He sold half of SurfStitch to Billabong in 2009 and bought it back in 2014 and then floated it at the end of that year, and now he seems to feel the need for yet another deal.
