Billabong bravehearts

The embattled retailer's share price has nearly doubled in less than a fortnight, confounding analysts and scaring off institutional investors.

Who would have thunk it? Billabong International shares are now double their all-time-low of 13 cents at June 21. At 1226 AEST the stock climbed 3.75 cents, or 17%, to 26.25 cents, after earlier rising as much as 4.5 cents, or 20%, to 27 cents.

Billabong’s shares are now trading above UBS analyst Ben Gilbert’s 12-month share price forecast of 25 cents. Deutsche Bank analyst Michael Simotas had a share price forecast of 15 cents for Billabong’s stock and a “sell" on the stock on June 4.

A salesman on the trading floor has dismissed the stock as “no longer an institutional trade”.  Individual investors and hedge funds now play with Billabong’s shares, he says. A one or two cent gain in the stock may mean a lot in percentage terms but there is precious little clarity as to Billabong’s financial position, according to one analyst.

Distressed debt investors Centerbridge Partners and Oaktree Capital Management have purchased, at a discount of 10% or more on face value, about $280 million of Billabong debt, according to The Wall Street Journal. The company’s $400 million debt facility was due July 2004. There has been no word on what the debt covenants Centerbridge and Oaktree have now assumed. Presumably both funds will want to keep such terms to themselves to maximise their gain amid a dearth of information on Billabong.

From Billabong there is also silence. There have been no statements on divestments, strategic direction or trading conditions. Last month the company’s guidance for before interest, tax, depreciation and amortisation was cut for a third time in six months to between $67-$74 million for its 2013 financial year. That implies as much as a 70% decline in EBITDA in the six months to June 30.

There is no sign of a concerted pick-up in Billabong’s main markets – perhaps with the exception of the US. Retail sales in Australia have declined for five out of the last eight months (see Roger Montgomery's Kathmandu weathers retail climate). European economies are in the midst of a deep, prolonged recession. Billabong’s stock is not for the faint hearted.

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