Commander Fails To Attract Interest

This story features CODRUS MINERALS LIMITED. For more info SHARE ANALYSIS: CDR

By Greg Peel

Shares in voice, data and internet systems specialist Commander Communications ((CDR)) jumped 36% on Friday, from 25c to 33c. The stock started the calendar year above $2.00. The jump followed the company’s AGM, at which a strategic update confirmed Commander had been in the market for suitors.

The problem is – it didn’t get any. At least none that the board were willing to consider. Management is not yet interested in breaking up the company and would prefer either a full takeover or a “cornerstone” investor for the company as it is.

Guidance was, nevertheless, reasonable, given the disaster of last financial year. Commander was unable to deliver on systems upgrades at a crucial point in the calendar. The resultant loss of reputation has hit the company hard. But for the first four months of the new financial year, Commander earned 30% of FY07 revenues which is fairly encouraging.

What’s not encouraging is Commander’s 88% gearing level and required finance rollover in October next year. If banks are unwilling to lend to Commander then it’s unlikely the corporate securitisation market is going to be an option. Commander may well have to raise further equity – something that might prove difficult given the company’s spectacular fall from grace.

Commander has been able to rectify some of its problems, has identified cost cutting measures, and has completed the integration of Volante. Unfortunately the company has had to give up some of its margins if for no other reason but to restore confidence.

Commander is currently carrying a 1/3/2 B/H/S ratio in the FNArena database. The “Buy” is actually the lesser rating of “Accumulate” from Aspect Huntley, and the research house has not updated yet since August. Following ABN Amro’s target price reduction from 95c to 55c this morning, the average target is 58c. That’s a big 43% above the current trading price, but still brokers remain cautious. JP Morgan describes Commander’s cash flow position as “precarious”, while ABN is concerned about share price volatility and the need for recapitalisation.

This one is a bit of a knife edge, offering value only for those investors who like to play with a good bit of risk.

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