Bathroom and buildings fixtures supplier GWA Group Ltd (ASX: GWA) took a beating during lunch time trade with the stock tumbling to a one-month low following the release of its full year results.
The stock tumbled 3% to $2.24 as GWA swung to a big full year loss of $16.2 million for 2014-15, compared with an $18.6 million net profit in the previous year.
A major restructure and big write-downs were the key drivers for the loss although management has tried to get investors to focus on the sliver-lining as normalised net profit actually increased 19% to $45.2 million.
The market wasn't having any of it as cynics would point out that anyone can deliver pleasing results if the junk that's weighing on profits was excluded – and that's what "normalised profit" generally is.
Short-sellers are probably emboldened by the messy result as the reorganisation of the group and the various impairment charges make it more difficult to compare 2014-15 earnings to the group's past performance.
Short sellers are traders who borrow stock to sell in the hope of buying it back at a lower price later to profit from the difference. GWA is a popular stock to short sell and will likely remain so for a while yet.
GWA has divested a number of businesses over the year including its Dux hot water system, Brivis heating and cooling climate systems and Gliderol garage door division. The group's profit was also weighed down by $27.6 million in write-downs.
Management is putting on a brave face and is painting an upbeat outlook for the group for 2015-16 from rising new dwelling construction starts and an expected recovery in non-residential building activity this year.
The streamlining of GWA's multiple brand portfolio and management's focus on productivity should put the group on a stronger footing and help it achieve its aim of restarting its ordinary dividend payments in February.
GWA's managing director Peter Crowley will retire at the end of the current financial year.
While GWA didn't pay a dividend for 2014-15, it did return 28.8 cents a share to shareholders through a capital return and special dividend payment in June.
But I wouldn't rush to buy the stock even though it has fallen close to 30% over the past 12 months. I think it would be prudent to wait for GWA to issue a trading update in October before making a move as the dust is yet to settle for the downtrodden group.
