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Victoria plc – “outrageous untruths… damaged the value of the shares”?, what about the margin warning & bond issue shambles?

By Tom Winnifrith & Steve Moore | Tuesday 6 November 2018

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.

Late last month, Steve noted on Victoria plc (VCP) warns on margins, Lucian’s ‘roll up unravel’ underway?. Since then there’s been “Credit Rating and Response to Speculation”, “Credit Rating” and now “Update on Bond” announcements…

The former saw the company note “work has been progressing on the bond for several months”, “pleased to announce… confirmation of a formal senior secured credit rating from Fitch, the global credit rating agency, of BB (stable) for the bond” and that it “must address the misleading rumour and speculation surrounding the reasons for the bond and the negative sentiment expressed towards the company, and the consequent fall in price of the company's ordinary shares since the start of the week”. The next day it reckoned it “is pleased to announce… confirmation of a formal senior secured credit rating from Standard & Poors, the global credit rating agency, of BB minus for the bond”.

Er, ok! How about the negative sentiment and share price fall being due to that highly rated shares can’t afford “impacting the group's overall margin”! The shares are currently again lower today on the back of the update being that the board now… “has resolved to continue with the company's existing bank facilities, rather than refinance them with a senior secured note (‘the bond’) as proposed last week. Whilst we continue to believe that, in terms of structure, the bond would have been suitable for the group to meet its long-term financing objectives, the indicative pricing for the bond, which was higher than had been anticipated, was such that it did not warrant changing the group's debt financing arrangements at this time.”

It also sees Chairman Geoff Wilding state; “last week was not the board's finest hour in terms of the clarity of our communication. For the last six years, the board has endeavoured to maintain an open dialogue, fully appreciating that it is the shareholders who own the company. Unfortunately, we placed too much emphasis on technical guidance and market convention and not enough common sense was applied in terms of communication with shareholders. By failing to communicate clearly last week and in the run-up to the bond launch, the company needlessly left shareholders feeling uncertain about the future. Critically, this also left an open goal for those with less than pure motives to spread outrageous untruths. This has damaged the value of the shares, although, of course, there has been no impact on the underlying business, which is high quality and continues to successfully design, manufacture, and distribute flooring products around the world as it always has done.”

Er, there is reason to feel uncertain though isn’t there Geoff? – the shares were highly rated and you issued a margin warning; …“investment in operating margin. Based on year-to-date performance and taking into account seasonality, this is impacting the group's overall margin by approximately 1 - 1.5 percentage points versus consensus market forecasts”, ring a bell?! Yes what you term a margin warning is what the rest of us call a profits warning old boy!

Together with being unable to get an acceptable bond issue away (despite having extolled “work has been progressing on the bond for several months” and “the long-term (5 year) nature of the bond; a fixed rate of interest… which was felt to be prudent given the current outlook for interest rates… flexibility for the company to implement its strategy; the depth of the bond market”), is it these factors damaging the value of the shares Geoff, rather than those with less than pure motives spreading outrageous untruths? They see the shares remain a sell.

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