Fund manager Gatemore Capital Management is pushing for a seat on the board of Slough-based logistics firm DX Group (AIM:DX) following a 36% YTD drop in the company’s share price.
Gatemore owns 20.5% of DX Group, which it regards as a standout performer in its field, but says it has been “deeply disappointed” by recent failures by the DX board.
The share price experienced a dramatic plunge recently following the 25 November announcement by DX Group that it was unable to publish its annual report because its audit and risk committee had recently raised a corporate governance inquiry relating to an internal investigation commenced during the financial year ended 3 July 2021. The committee and the company’s auditors are expected to conclude their work next year, but not before 2 January.
If, as expected, the annual report from DX Group is not published by 2 January, shares will be suspended in accordance with AIM Rule 19 on 4 January. Shares in DX Group dropped from 30p to currently trade at 23.5p.
Gatemore Capital takes dim view
Gatemore Capital has taken a dim view of the announcement. While it sees DX Group as a standout performer in its field, it says it is deeply disappointed with the board’s recent failures. “We question why the content of the announcement was so ambiguous and lacking any meaningful detail, in particular regarding the nature of the internal investigation and the reasons why the related internal inquiry and audit cannot be finalised ahead of 2 January 2022 so as to avoid suspension of trading of the company’s shares,” Gatemore said in a statement today.Gatemore said it was pushing to have its managing partner, Liad Meidar, appointed to the board immediately, to give the fund manager a better grasp of the underlying issues.
DX Group is by no means holed beneath the waterline: it upgraded its profit forecast no less than five times during FY 21, has successfully returned to profitability and is expected to generate £50m of cumulative free cash flow over the next three years. The company has a strong balance sheet with a net cash position, no pension liability and freehold ownership of its Willenhall hub. This asset alone is estimated to be worth £20m at least.
Market has high expectations of DX Group
The market has been expecting DX to deliver the highest earnings growth in its sector over the next three years as well as the highest cash flow yield while trading at a very low PE relative to its earnings growth. Yet it remains well off analyst price targets which range from 45p up to 57p.
DX has assured investors that its 25 November statement is a governance matter and not a financial one, that this does not change its financial guidance or the outlook for the business overall.
“The board has a poor record on investor communications and transparency,” Gatemore said today. “This sunk to a new low with last Thursday’s baffling announcement which outlined further potential delays in the confirmation of the FY21 accounts and raised the spectre of a trading suspension on 4 January 2022. Given the seriousness of such an outcome, we find it extraordinary that the board failed to provide any further detail or clear explanation as to the nature of the internal investigation and inquiry or why these cannot be completed in time to avoid a suspension. It is our opinion that the nature of this announcement demonstrates a complete failure of the board to act in accordance with its fiduciary duties and an absence of acceptable governance standards at DX.”
Gatemore also said it wanted support from other shareholders of DX to support Meidar’s appointment to the board of the company so that he can get to the bottom of the governance issues mentioned. It is pushing for his appointment by 3 December, failing which it plans to requisition a shareholder meeting.
