What’s next for Tungsten (LSE: TUNG)?
According to some rumours, the company’s management is now gearing up to take the company private.
Indeed, trades in the City have begun to speculate that Tungsten’s CEO and founder, Edi Truell, is planning to withdraw Tungsten from the public markets following a year of turbulence.
Turbulent times
During the past 12 months, Tungsten has fallen spectacularly from grace. Since the end of June, the company’s shares have declined by a staggering 78%, leaving many investors sitting on large losses.
But it’s not the monetary losses that are the most concerning. Since becoming a public company, Tungsten has consistently missed targets set out by management.
As a result, management’s reputation lies in tatters and shareholders have turned their back on the company.
Teething troubles
It would be unfair to say that Tungsten has misled investors on purpose. Like all early-stage growth companies, Tungsten has been forced to deal with its fair share of problems.
Although, in many respects, the company should have ironed out these problems before it became a public company.
For example, Tungsten’s invoice-financing arm had been aiming to lend out £58m to customers by the beginning of this year. However, by May, due to lengthy background checks only 20% of the customers Tungsten had signed up to use its invoice-financing facility had been able to borrow money.
Still, Tungsten’s management remains upbeat about the company’s prospects. Earlier this week the company raised £17.5m through a share placing to improve its cash position.
Bright prospects
Tungsten might have some mistakes but Crispin Odey, the hedge fund manager and one of Tungsten’s largest shareholders, believes that as the company gets its house in order, Tungsten can generate £8m of profit in two years on a loan book of £260m to £300m.
City analysts aren’t so optimistic and are forecasting that Tungsten will still be loss making by 2017. A pre-tax loss of £5.4m is projected. Last time I wrote about Tungsten, analysts were expecting Tungsten to report earnings per share of 14.3p for fiscal 2017.
Apparently, analysts are only becoming more sceptical about Tungsten’s outlook.
Going private
It’s the City scepticism that is apparently the reason behind Edi Truell’s drive to take Tungsten private.
The market’s attitude towards Tungsten has changed, and it seems as if many traders and analysts are out to get the company. As a result, Tungsten’s reputation has been shot to shreds.
Going private wouldn’t solve this problem entirely, but it would certainly allow the company’s management to sort out Tungsten’s troubles in peace.
Nevertheless, if Tungsten were to go private, it would leave initial investors — as well as those that brought at any point during the past 12 months — sitting on significant losses.
Unless management brought out existing shareholders at a large premium to the current price, none of Tungsten’s existing shareholders are likely to be overjoyed at the prospect of the company going private any time soon.
