Mid August 2012

INDUSTRY: Billabong analysts. - The knives come out

Garret McNamara. 'the ghost' Navigates a big tube © BillabongXXL.com

Industry Updates

What stock do we put in analysts?
The knives come out when chips are down! 

Surfersvillage Global Surf News, 11 August, 2012 : - - If fund managers followed the advice of Shaun Cousins they would have avoided the Billabong wipe-out. As Billabong undertook a capital raising in May 2009 the JPMorgan retail analyst shifted his recommendation from 'neutral' to 'underweight'. Cousins was largely a lone voice in suggesting his professional fund manager clients stay away from Billabong shares.

He held tight to the underweight call event though Billabong moved from $8.07 at the time of the underweight recommendation to touch as high as $9.54 just a few months later. He pointed to the cyclical headwinds facing Billabong as well as some more company specific problems such as high levels of debt and a decision to open retail stores.

Then from the start of 2010, things started looking shaky for Billabong - as well as the broader retail sector. They began to fall on broader concerns of a pullback in spending, and cool summers in its key markets of Australia and North America while the debt levels also weighed on sentiments.

Cousins, was named top retail analyst in the latest annual ranking of analysts by consultants East Coles, and says retail stocks can be a tough sector to model. Read more

The knives come out when chips are down 

Fair weather friends are always there in the good times, and hard to spot when the chips are down. It's a phenomenon that's exaggerated in the world of finance where those who succeed are feted as demi-gods when the money is rolling in, only to find themselves banished to purgatory when the luck runs out.

Gordon Merchant knows the feeling. When Billabong stock hit $18 a few years back, he was a genius, a visionary who could do no wrong, even if he was a goofy foot. These days, allies are thin on the ground.

In February 2012 he told TPG to take a hike with its $850 million offer. Since then shareholders were asked to stump up $255 million in new capital, and the Billabong board is now considering a reduced $695 million offer from the very same private equity firm.

Merchant, once hailed as the richest man in surfing with a personal wealth somewhere north of $870 million, is now worth a fraction of that. An uncompromising individual with a sometimes volcanic temper and a demand for perfection, he put a great many people offside in his obsession to build the company that Billabong eventually became. Now, with the glory days well in the past, the knives are out.

It seems Billabong's days as a listed company are numbered. The long hard rise and rapid fall of Billabong has highlighted the issue of the role founders should play once private companies are sold to the public. The modern view is that they do more harm than good, that they lose perspective and instinctively act to preserve their power rather than act in the interests of the company.

What limited academic research on the subject exists tends to contradict that view. Founders and family shareholders tend to act with a view to the long term while professional managers look for the bonus payments and the short term pay-offs to shareholders. Billabong's history is a good case study.

Read more 

Source: SMH

Author: The Editors

Tags: Billabong

Industry: Surfersvillage

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