Eddie Stobart Logistics (AIM:ESL) was unsuspended on 26 February on the AIM exchange and we have seen some interesting share price action, first with a substantial fall, but since then some very big one day gains.
Eddie Stobart shares were suspended in August following a review of its accounting practices. This led to the departure of its CEO and the suspension of the shares.
The company is frequently referred to as ‘troubled’ in the financial press and negative sentiment led to an immediate sell off in the stock as soon as the shares came back online. We think this was overdone, but it was a natural reaction given how long the suspension went on for.
Strategic buyers are interested in Eddie Stobart
There had been an attempt to buy the business back in November. At the time Wincanton seemed enthusiastic enough to open its cheque book but then claimed they were unable to complete enough due diligence as there was an auditor’s review underway (see issues with accounting mentioned above).
Since then DBAY Advisors have injected £70 million (at a valuation of 32p) into Eddie Stobart Logistics prior to the shares being unlocked. This was via one of its funds, DouglasBay Capital III, which bought a 51% stake in Greenwhitestar Acquisitions, which is the holding company for Eddie Stobart. Based in the Isle of Man, DBAY had previously owned Eddie Stobart between 2014 and 2017.
There was also a rival bid in the pipeline being put together by Andrew Tinkler, former CEO of Eddie Stobart. His firm, TVFB, had been looking to inject £80 million into Eddie Stobart.
Interim results have since been declared which have seen revenues up. Eddie Stobart is expecting to declare a small EBIT loss for the year and management has been keen to reassure investors that it is on top of the accounting issues.
The shares have been as low as 4.5p since Eddie Stobart stock started trading again. Shares have since traded as high as 14p. This is already a considerable mark up given the circumstances.
Debt remains an issue
Some investors remain concerned about the high level of debt (£150 million) versus the £40 million valuation. This is a substantial risk factor which cannot be discounted.
There is a good chance at these values that another player will want to buy in if the shares are as cheap as this. But that debt has to be a consideration. At the moment it is facing net liabilities of £60 million.
Overall broker consensus is rating Eddie Stobart as a buy, with a target price at over 900%* of where it is now. This may seem crazy to some investors, but this is a company that was trading at almost £1 less than 12 months ago. It can now be had very cheaply.
Eddie Stobart certainly seems to attract enthuisiastic buyers at the strategic level, people who know the company’s ins and outs, and are prepared to stump up more cash to keep it running.
Further discussion on the Eddie Stobart share price is available on the Vox Markets podcast.
*Data sourced from SharePad. The UK’s no.1 investment data & analysis software for Private Investors as voted for by FT/Investors Chronicle readers. Discover the advantage at www.sharescope.co.uk/sharepad.
