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Commander Hits Rock Bottom |
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Written by Adam Gosling
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Wednesday, 12 September 2007 |
Shares in ASX-listed Commander
Communications hit an all time low yesterday as large institutional
investors rushed to get out of the ailing company.
It has
been a bad week and a bad year for Commander shareholders as the
company's share price continues in free fall following highs last year
when Commander had successfully completed an unfriendly take over of of
IT hardware and services company Volante.
It has been a rough road for investors and customers since early
May this year. The sell-off of Commander shares began on May 2, 2007
with the company's
first admission it would not meet its targets because the predicted
benefits from the merger and channel strategy were not
being realised.
At that time the company admitted that lost orders
resulting from the failure of its franchising initiatives forced it to
revise downward its FY2007 EBITDA forecast. At that point the company's shares fell significantly from the trading
range about $2.00 to much closer to $1.50. The company's shares had
traded between $2.00 and $2.50 for more than two years prior.
Then in late June the company also announced a further EBITDA
downgrade caused by what appeared to be a failure to integrate the
company's two order processing systems resulting in a backlog of orders
that would not be delivered or invoiced in time for fiscal year end.
Yesterday after major
stakeholders AMP and Perpetual completed divesting the under-performing
shares, the company's stock price hit a disappointing 43.5 cents before
closing slightly higher at 46.5 cents. With Perpetual and AMP both
ceasing to be substantial shareholders so far this week, the price has
recovered slightly today and was trading at over 50 cents.
Superannuation
Fund Manager IOOF, has also bought into and sold down its Commander
holdings in the past 6 months during which time the shares have fallen
more than 75%.
To add insult to injury, and possibly accelerating the sell-off,
Standard & Poor announced the company was removed from the
S&P/ASX 200.
The company's management have achieved this result despite a
strong market for ICT and IP Telephony raising questions about their
ability to execute the strategy it has pursued with the forced
acquisition of Volante and its franchisee roll-out.
The poor
share price and financial results may have come as a surprise to
investors after the Commander Chairman, Elizabeth Nosworthy, told
shareholders at last year's AGM in late November 2006, that "Volante
has been successfully integrated into the Commander business".
"Over
the last 3 years Commander has performed strongly, increasing revenues
by 60% from $493 million to $790 million increasing EBITDA by 122% from
$25.3 million (AGAAP) to $56.2 million (AIFRS)," she said. At that time
the company's voice business was growing at 10.7 per cent. Ultimately
however, the fiscal 2007 results showed a revenue decline in the
company's Network and Voice business of 1.3 percent. This at a time
when corporate IP telephony migration is booming. Perhaps the company
should not have been so quick to Brag how far it had moved away from reliance on its voice business.
Commander CEO Adrian Coote also said back in November 2006 that: "FY2006
was a foundation year for Commander, necessary to deliver the
significant benefits of its second horizon goals. We invested towards
creating the network and back office platforms necessary to achieve our
growth objects and we were also able to fast track a strategically
important managed services business by acquiring Volante."
Then on February 19, 2007 he was telling the market that: "FY2007 is
a year of transformation for Commander. In the first half we have seen
significant growth in uptake for our managed and professional services
made possible following the integration of Volante. The successful
rollout of the Commander Centre franchises across regional Australia
also underpins our first half successes."
Then 10 weeks later the company issued its May downgrade from the initial August 28 guidance of A$95-A$101m to just A$80-A$90m.
But by year end, when the final report for fiscal 2007 hit the
street, the reality was far worse when the company posted an EBITDA of
just A$67.2 million only slightly better than its June 28, 2007
downgrade.
The company recorded a net profit
of A$25.9 million off revenues of more than a billion dollars
(A$1088m). This revenue result was up nearly A$300m on the year prior
thanks to a 38% growth spurt possible as the result of a full year of
merged Volante trading.
In that first full year of merged trading then,
Commander's investment in Volante has enabled the company to return
shareholders a 12% EBITDA increase and a fall in Net Profit of 121
percent from A$25.9 million in 2006 to a loss of A$5.35 million in 2007.
It is almost laughable that the company blamed its poor performance on
"stronger than usual last quarter growth in ICT Hardware sales for the
combined group which overwhelmed the company's business processes and
automated ICT hardware and maintenance processing systems, resulting in
a significant number of orders not being delivered or invoiced in the
year".
The company claims it has "strong long-term relationships with its customers and
is making all attempts to priorities deliveries to match individual
customer needs, with a view to completing as many deliveries as
possible in the new financial year. However, forward guidance for the
2008 year end shows no jackpot looming with EBITDA guidance of A$67-A$75m barely up on
what it achieved to June 30, 2007.
"This has been a disappointing year in a
number of respects," Coote said in the results statement.
It certainly has been a disappointing year for the company's shareholders.
There is little doubt some CIO's attempting to spend their full 2006/7
budget allowance prior to June 30 would have been disappointed too.
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