BWX (ASX:BWX) problems more than skin deep

Shares in BWX plunged yesterday after they came out of a trading halt requested last Friday as the company revealed its financial position had all but collapsed.

Tuesday saw announcements from the company for a fund raising, a poor trading update that led to questioning about the company’s future and news the company is being supported by its bank as it goes through a big revamp.

The shares fell sharply, ending down more than 40% at 69.5 cents, the lowest close ever.

The BWX share price has fallen by more than 87% over the past 12 months; more than 84% in 2022 alone.

As a result of the poor trading update, a surprise warning of looming asset value write downs and news that the company is being supported by the Commonwealth, BWX is now asking shareholders for more money around $23 million.

That’s a request that won’t be helped by the poor details in the update – an after-tax loss for the year to June 30, cost cuts and other changes across the company and big marketing changes as well.

The weak trading position, looming impairments and other problems revealed in the statements also help explain the massive 47% discount in the price of the shares in the placement and issue – 60 cents a share compared to the $1.17 the shares traded at on June 23, the day before the trading halt was asked.

Also telling was news of a board clean out with up to four new non-executive directors to be found by the AGM later in the year and the promise of a new pay incentive structure for management.

Perhaps the most telling sign of the company’s current problems, however, was the news about the attitude of its bankers – the Commonwealth.

BWX’s lender Commonwealth Bank of Australia (CBA) is supportive of the capital raise, the company said.

“CBA has agreed to suspend BWX’s financial covenant reporting obligations for the periods ending 30 June 2022 and 30 September 2022,” BWX said in the statement.

“BWX will repay $10m to CBA as permanent debt reduction from the proceeds of the capital raise,” the company told the market. That’s the price for the support.

The centrepiece of the announcement was the $23.2 million capital raising that will be used to cut soaring debt and will be supported in part by newish shareholder, Andrew Forrest’s Tattarang investment company as well as another major shareholder, Bangarra.

Of that amount, $13.5 million will be raised via a placement to “sophisticated and professional investors” and a one-for-10 non-renounceable entitlement offer will aim at raising a further $9.7 million.

BWX told the market that proceeds from the offer will be used to accelerate debt reduction and for working capital. “Pro forma net debt at 30 June 2022 is expected to be in a range of $58m to $62m. Pro forma net debt at 30 June 2023 is expected to reduce to $23m,” the company said.

The company said in the update that 2021-22 sales will total around $206 million against $194 million in the previous year, but EBITDA is now forecast to slump from $34 million for the year to June, 2021 to between $6 to $10 million in the year to this Thursday (June 30).

Revenue is down from the early May forecast (when the shares fell 22% in a day) of a range of $233 million to $243 million and the company also forecast EBITDA of $27 to $30 million. That will now be $20 million or more lower.

That in turn will see the company report a net loss for the year of $10 to $14 million.

These estimates are before significant items which the company believes will include impairment write-downs.

Tuesday’s release contained this warning to investors “The Board believes it is likely that BWX’s intangible assets may be impaired to a level significantly below their carrying value.”

Considering they rose more than 50% at December 31 to $465 million from $300 million a year earlier, the impairment could be very substantial, and so could the bottom-line loss at June 30 for the company.

But after the cost cutting, capital raising, debt cuts and other savings, BWX reckons growth will be back on track with revenue surging to $260 to $270 million from the weak $206 million forecast for 2021-22.

EBITDA is forecast in 2023 to rise from $6 to $10 million to $45 to 49 million.