Embattled sandalwood grower Quintis Ltd (ASX: QIN) updated the market yesterday. The company has slashed its sales guidance and withdrew its previous earnings guidance.
Curiously, this announcement was not marked as market sensitive, although I bet that shareholders would beg to differ. Here's what management had to say:
- The Company is unable to accurately predict the outcome of the coming sales season and so the Company is withdrawing its Cash EBITDA guidance for the year to 30 June 2017.
- The Company now anticipates product sales in the range of $25m to $35m (down from $45m to $55m previously)
- As at 31 May 2017, the Company's cash and cash equivalents were $17m… The Company is in on-going discussions with a number of parties with the aim of finalising a recapitalisation of the business.
- Quintis has received non-binding equity and debt propositions from multiple parties. Discussions are on-going and no binding offer may eventuate, so Quintis has requested that its shares be kept suspended.
It's an unfortunate evolution in the saga that has smashed the value of the company's shares down 78% in a year. While the above statements speak clearly to the business' troubles, they're not the only issues that have been raised.
Management was not aware that a contract with Galderma (a key customer) has been cancelled for more than 4 months after the cancellation agreement had been signed. The Managing Director Frank Wilson also departed with zero warning 2 months ago, just before the problems with earnings became apparent.
Given all of the red flags and the additional issues revealed in yesterday's announcement, I would avoid Quintis at all costs. Even if you took the view that shares are undervalued today – and I think this would be an extremely risky view to take – the possibility of a recapitalisation could see the value of your shares vanishing.
