Markets: Buying Billabong

Billabong shares are a high risk buy, says Citigroup analyst Craig Woolford, whose 12-month share price target for the stock has already been surpassed after the clothing retailer unveiled a financing and equity investment by Californian private equity firm Altamont Capital Partners yesterday.

At 1519 AEST Billabong shares had jumped 8.5 cents, or 34 per cent, to 33.5 cents, half a cent more than Woolford’s share price target for the stock that Citi usually forecasts over a 12-month period. The company's stock is the best performing share today in the S&P/ASX200 Index and is also the best performer over the last month, up 84 per cent, according to Bloomberg data.

The clothing retailer’s deal with Altamont had to be done or otherwise Billabong faced insolvency, says Woolford. Altamont has agreed to lend Billabong $650 million and its financing also carries options for the buyout firm to take as much as a 40.49 per cent stake in the company, according to an ASX statement. Billabong shareholders could see their existing shareholding trimmed to 59.51 per cent.

“Billabong’s brands remain intact and with less debt pressure,” says Woolford. “We believe profit margins can recover.”

Billabong is the best performing stock on the S&P/ASX200 Index today and is also the best performer over the last month, up 84 per cent, according to Bloomberg data.