Now when I look at this business, I think we need to go back to the basics :
1 Management Interests - Mr Foster seems still the largest shareholder of CLG, even what he has done so far seems suspicious in driving the business growth through heavy debt and aggressive acquisition, better SP performance still in line with his personal interests so I still believe that drive the SP down is not his intention, he might try to achieve these growth goals to get more cheap/free shares through performance rights, but clearly SP drop 30%+ in two business days is also not what he wants, in fact, this means he also lost 30% of his money no matter how he got them.
2. Debt: The current debt is combined from 14.26M short term borrowings and 68.9 long term borrowings. In short term, it still holds 40.6M cash and 36.0 receivables, if we deduct 20.9M payables, the company still have sufficient money to maintain its operation for a while. So, no liquidity risk.
3. Profitability: The company generates 21.7M cash from its operating activities, if the management can stop these stupid acquisition and just focus on organic growth, in the worst case, no growth at all, the business could still have 25.89M(11.166+14.729) left after it pays all the interests, with the potential to reduce the debt 10M+ per year for next 5+ years. So what's left? Perhaps 10M each year, which means its cash position will start to recover going forward.
4. Growth: The management should stop these stupid acquisition and just focus on organic growth, if they could find another big customer, don't not even as big as HP, there will mitigate the strategic risk and also bring new revenue stream to the business, that is the only way I can see a big growth for the revenue going forward. The growth from USA seems ok, but I am not sure if they could maintain that growth rate in FY25. Australia is actually declining.
So forward looking, is now the worst timing for the SP and CLG? Perhaps yes if the management could do the right thing going forward. If they continue to focus on the acquisition and increasing its working capital via more debt, the business will become unsustainable and eventually start to record lose.
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