Billabong International
Recommendation
Billabong International’s share price jumped as much as 17% today after the company revealed a potential leveraged buyout from Paul Naude. Naude, president of the Americas business and a current director, will 'stand aside' from his daily duties for six weeks as he finalises his proposal.
Peter Bryant, current chief financial officer for the Americas, will step into Naude's role during this period. Naude is also barred from talking with company employees, board members and top 20 shareholders during the process; although presumably he has an inkling he’d get support for any proposal.
While no transaction is guaranteed, it is positive news for shareholders. Naude has been in charge of American operations since 1998, and as a long-term company insider should have a deep understanding of the company’s operations. The fact that he sees value now corroborates our view that the market is mispricing Billabong.
In related news there have been numerous media reports that Australian retail conditions have improved, with Country Road, Specialty Fashion Group and Kathmandu all reporting an increase in same-store sales for the quarter ending 30 September. Even advertisers are reporting a slight increase in spending. This bodes well for Billabong, which generates around 30% of sales in Australia.
Billabong’s share price remains volatile, and even with today’s gains is down 5% since Billabong’s road to recovery from 25 Oct 12 (Speculative Buy – $0.86). Our recommendation is unchanged, SPECULATIVE BUY.
Note: The model Growth portfolio owns shares in Billabong International.