RE: VOX17 Jan 2025 18:54
Small crumbs of comfort here.
A strong net cash position is still expected to remain at the year-end, albeit being lower than previous expectations given the reduced profit delivery and expected lower receivables recovery due to customer in protective arrangements or bankruptcy procedures. The Company also continues to expect cash proceeds from property disposals.
Progressive has this at $63.4m at the year end. And, of course, the huge discount to net current assets remains. But the timeframe for these becoming productive is now kicked into the unknown:
Under these challenging circumstances, at this stage, and until the recent events are more fully assessed, the Board is no longer able to provide guidance for the years beyond FY25.
Management credibility has taken a huge hit here. After all, less than a month ago, they gave a number of very specific reasons why they expected DG Americas profitability to recover in H2. The reality has been far from that and means they’ve pretty much gone from hero to zero in one step.However, the 60%+ fall this week also looks overdone. Even with write-downs from one of their customers entering Chapter 11, the discount to Tangible Book Value is huge. Indeed, the expected cash balance at year-end covers almost 90% of the current market cap. The market is pricing this as if their receivables and inventory are largely worthless. This may be the case, but it seems far from the central outcome we should be using. The shares are trading not far off the level when the company was facing the real risk of insolvency, something that is no longer the case today. It will be a long wait for any recovery, though. With management credibility shot, the market will no longer value this on forecasts but will want to see profitability over an extended period before believing that DG Americas has actually been turned around.
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