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FTSE 250 inventory John Wooden Group (LSE: WG.) has tanked just lately. This month (February), it’s down greater than 60%. In the meantime, over the past yr, it’s fallen greater than 80%.
Is the British engineering and consulting enterprise value contemplating as a worth/turnaround play? Let’s focus on.
What’s happening?
When a inventory tanks like this, it’s essential to search out out what’s happening. This might help decide if there’s a possible funding alternative. Now, on this case, there are just a few points that should be highlighted. And a few of these are fairly critical.
For a begin, the corporate suggested earlier this month it now expects unfavourable free money circulation of $150m-$200m for 2025. Beforehand, it was forecasting “vital” free money circulation for the yr.
This lack of money circulation could possibly be an issue for the group because it has fairly a little bit of debt on its steadiness sheet ($690m on the finish of 2024). In keeping with analysts at Kepler Cheuvreux, the corporate may have to lift $400m from buyers to remain afloat.
Subsequent, the corporate just lately commissioned an unbiased evaluate of its financials by Deloitte after discussions with its auditor. And this evaluate has recognized “materials” weak spot and failures within the group’s monetary tradition, governance, and controls.
It’s value noting right here that following provisional indications from the evaluate, the corporate’s evaluating the extent of prior yr changes to its financials. In different phrases, earlier earnings might should be restated.
Moreover, the corporate just lately stated CFO Arvind Balan had stepped down with quick impact. He had been within the position for lower than a yr.
So total, there’s fairly a bit to course of right here. It’s simple to see why buyers have dumped the inventory.
Price a glance right this moment?
When a inventory falls by 80%+, there can typically be a chance for a rebound. However buyers must weigh up the potential of a rebound in opposition to the dangers (additional share worth weak spot).
Now, taking a bullish view for a minute, the corporate’s planning to rework itself by shifting away from lump-sum turnkey initiatives (the place a contractor agrees to finish a undertaking for a hard and fast worth) and slicing prices (annualised financial savings of $60m this yr). These strikes may assist to enhance its fortunes.
Nonetheless, for my part, the dangers listed here are very excessive. The debt on the steadiness sheet’s an issue, particularly with the shortage of free money circulation. If the corporate’s pressured to lift fairness to handle this, it may result in additional share worth weak spot for buyers. Usually, a serious fairness increase dilutes present shareholders’ holdings considerably.
I’m additionally involved in regards to the provisional findings from the unbiased evaluate. At this stage, we don’t know the way prior earnings shall be affected.
One different factor value mentioning is that in 2023, personal fairness agency Apollo World Administration made a number of gives for this firm. Nonetheless, it then all of a sudden determined it wasn’t excited about a deal. Apollo didn’t say why it pulled out, however the sudden withdrawal suggests it noticed one thing it didn’t like.
Given the dangers, I don’t see a lot enchantment right here. I feel there are a lot better shares to think about shopping for right this moment.
