Cable & Wireless stuns the market again. Is it time to throw in the towel?
So the rose-tinted spectacles through which the board of Cable and Wireless Worldwide (LSE: CW) was viewing the world have been cleaned up to reveal a slightly less polished view of reality.
Tuesday's profits warning was the third in a year and saw the departure of the CEO, around £180m wiped off the company's valuation in one day, and a halving off next year's planned dividend to 2.25p -- though the company will honour the 3p due to us shareholders on 11 August if agreed at the AGM on 21 July, which I would imagine will be "entertaining" to say the least.
The former Financial Director -- who fell on his sword for cautioning his fellow directors of exactly such a scenario -- has been proved right in hindsight.
Meanwhile, the man mainly responsible for creating this unseemly state of affairs is now running things as CEO, having already creamed off a cool £10m in bonuses for overseeing a shambles before and since the demerger from sibling Cable and Wireless Communications (LSE: CWC) in March last year. In contrast, the CEO of the latter company has recently shelled out £1.2m on shares.
That's one view anyway.
Blood on the boardroom carpet
The other view is that the company was a high-yielding value candidate displaying some good value credentials, which has had to cut its forward dividend in half in a sensible move to shore up the cash-flow as it explores new business areas -- and the new man now at the executive helm is here to make big things happen as the CEO has departed.
In other words, we're at the start of a renaissance and it's the contrarian's time to buy while there are still bloodstains on the boardroom carpet.
I suppose it all depends on your degree of cynicism, but the recent history since the demerger hasn't been the most glorious chapter in the company's long history. The share price tells its own sorry tale, losing over 60% of its value.
At the foot of this article, you'll see the words we're obliged to include: "David owns shares in Cable and Wireless Worldwide," to which I'd like to add: "...but wishes he didn't!"
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Trust no more
Perhaps more accurately that should read "wishes he hadn't..." bought recently, given the doubt over the FD's departure and the possible masking of bad news, which we now know to be true; that and the whiff of "fat-cats with snouts in the trough" vibe, which does so much to damage shareholder confidence.
But that's all water under the bridge. The only question for investors now is whether there's value at this point. The share price is 46p as I write.
The continued presence of John Pluthero, the man who presided over the demerger, now as CEO, won't do much to cheer most shareholders. Pluthero received £10m in payouts in 2009-10,while the outgoing CEO Jim Marsh got a mere £9m.
Your view on this kind of pay will depend on whether you think it's necessary to attract the world's best talent. My view is that it's simply immoral. But I digress.
Tuesday's third time unlucky warning comes as the company is seeing declines across all its business areas -- whereas the previous two were put down to public sector cuts. We're now told EBITDA will be 5-10% below expectations; with a consequent effect on cash flow, hence the halving of the future dividend.
Pluthero's plans to accelerate the company's investment in cloud computing has also impacted earnings. But this is still where he sees the necessary growth coming, as C&W Worldwide's legacy businesses, in traditional telephony services, are in decline.
Benefit of the doubt
From this point, the company has a tough job ahead in rebuilding the confidence of its owners. That will only come from bottom line performance, rather than the platitudes we're getting at the moment.
On balance as a shareholder, I'm prepared to give the company the benefit of the doubt for now, given its low forward earnings multiple, low gearing and reasonably good asset base; that and the "blood on the carpet" basis that we're surely near the bottom -- though would much prefer to see a new broom sweep clean the mess here.
Of particular relevance, of course, is that C&W Worldwide recently turned down a c.£300m bid (equivalent to over 11p per share) for its international assets from Pacnet, a telecoms company based in Hong Kong and Singapore. The hope now is that another bidder comes along and the company is reportedly "open to all considerations".
It may be that radical action will be required to see the value.
More from David Holding:
> David owns shares in Cable and Wireless Worldwide and Cable and Wireless Communications.