Crowe Horwath replaces CEO

John Lombard has paid the price for poor performance over the past couple of years as chief executive of Crowe Horwath Australasia, the rebadged WHK Group, being replaced with immediate effect by chief financial officer Chirs Price. Price, however, will only serve as Acting CEO, while the board looks for a permanent solution. Price has been with the company for 6 years following ‘an extensive career in chartered accounting and manufacturing’.

The announcement follows the company’s full-year results a couple of weeks ago, which showed normalised earnings before interest, tax and amortisation of $26.5m, in line with April’s profit warning (see 29 Apr 13 (Hold – $0.90)). A fully franked final dividend of 2.0 cents was declared (ex date 30 Sep), bringing the full-year total to 5.0 cents, down from 7.0 cents last year.

Underlying earnings per share came in at the 4.5 cents we outlined when we downgraded to Sell in WHK takes the ostrich approach on 8 May 13 (Sell – $0.68) (with lower amortisation offsetting a higher than anticipated tax rate). That puts the stock on a price-earnings ratio of about 14, which looks like plenty given the problems the company faces.

Those problems don’t look like going away, with the recent announcements both confirming that subdued activity levels continue among small and medium-sized companies. Where there’s not enough work to go around, we suspect Crowe Horwath has a hard time competing for lucrative advisory work against the big accounting firms, and we suspect that a lower level of work is the new normal.

Now the company must face these problems with an Acting CEO. The one blessing is that this may encourage SFG Australia to come back with another bid. If it returns, however, it’s likely to do so with a much lower price and we wouldn’t recommend holding out for this eventuality. The stock is down 9% since 8 May. SELL.