ABC Learning Shares Still Suspended

The ABC Learning (ABS) saga continues. Regular readers of Australian Stock Market Investing will know I've developed a fascination with this company as evidenced by my posts on their share price crash, the continued stock price slide, the share price recovery and finally the IMF Class Action against ABC Learning. It feels like I've been watching a car crash in slow motion. The shenanigans that have gone on here are worthy of the best (or worst) daytime soap operas.

ABC last traded at 54 cents after an alarming share price drop over the past year. The share price graph below does not paint a pretty picture - especially if you're an ABS shareholder.

ABC Learning Share Price Chart

Next I'll bring you up to date with the latest developments.

ABC requested a trading halt on 21 August, which the ASX granted.

On 25 August, ABS shares were suspended from official quotation at the company's request so the company could:

"finalise its full year results and prior period adjustments arising out of a re-assessment of accounting treatments"

The voluntary suspension was meant to last for 4 days (it's now mid-September).

Then on 29 August, ABC Learning announced it was still not in a position to release its annual results and therefore would not be able to comply with ASX Listing Rule 4.3. Listing Rule 4.3 says that a company must provide its Annual Results within 2 months of the close of the accounting period, subject to a number of exceptions. For those purists out there who want this stuff straight from the horses mouth, you can read more about Listing Rule 4.3.

The most recent announcement on 9 September indicates results should be available by the end of September 2008. They also announced the appointment of a new Chief Financial Officer (CFO) - Peter Trimble. Is that a hospital pass or what?

While there's been no official word, apparently sources have told the Sydney Morning Herald that the release of the annual accounts have been delayed over questions of the company's solvency. Ernst & Young have taken over the audit role from Pritcher Partners and the rumor is that KPMG has been called in as arbiter over a dispute about the correct accounting treatment of some items.

I'm sure the last thing Eddie Groves and the ABC Learning board want is for Ernst & Young to issue a qualified audit opinion, especially if the qualification relates the company's status as a going concern.

Having said all of that, provided ABC doesn't become the Australian stock market's latest corporate fatality, it may be an interesting situation. It operates what should be a profitable business. I believe there is a board restructure taking place and if they were able to reduce their debt to more realistic levels and concentrate on the Australian business, who knows - maybe something beautiful can grow...

ABC Learning To Face Class Action From IMF?

I've written about ABC Learning (ASX Code: ABS) a number of times recently, and it seems there may be more bad news on the way. I read in the Business Section of The Age yesterday that IMF will be funding a class action against the Australian Stock Market's largest childcare provider.

According to the article, the lawsuit hinges upon an alleged lack of disclosure by ABC. In February of this year $73 million of develper fees was disclosed for the first time. This $73 million along with a couple of other one-off items was enough to allow ABC to report a profit, but without these one-off items, there would have been a rather nasty loss. Apparently any litigation would relate to the material nature of these developer fees.

In an announcement to the Australian Stock Exchange a couple of days ago, ABC Learning were at pains to point out that it "has not received any claim or any notice of claim" with regard to the action from IMF. It said that IMF's announcement is simply stating it's intention to fund any possible claim - depending on the level of participation.

IMF is a provider of funding and support in litigation similar to the one mentioned above. It seems to have had some success recently including a settlement with Aristocrat (ALL) for which I'm sure IMF will earn a hefty fee.

ABC Learning Shares closed at 83 cents today, down half of one cent.

ABC Learning Share Price Recovery

Shares in ABC Learning were one of the better performing issues on the Australian stock market today. After reaching new lows this week, they finished up 30% today still a far cry from the $8.00 plus all time high, but much improved from their low of 65 cents this week. Only yesterday I wrote about this week's share price weakness in ABC Learning Shares Plumb New Lows.

The recovery appears to be in response to an announcement released to ASX today which said that ABS had completed the sale of 60% of its US Business to Morgan Stanley Private Equity. The announcement also stated that ABC Learning has received the cash proceeds of the sale. As far as I can tell, some of the proceeds will be used to reduce debt levels at the company.

The transaction values the US Business at US$700 million. ABS still retains ownership of 40%. One of the interesting parts of this deal is a call option for ABC Learning to buy back the 60% from MSPE in 3 years. It seems they really want to keep pushing into the US.

Today's share price recovery is impressive. While the Australian stock market is up overall today, the ABS gains put it way ahead of the index. The investing public are obviously happy with the deal.

ABC Learning Shares Plumb New Lows

ABC Learning (ASX Code ABS) is the largest listed childcare provider on the Australian Stock Market. As I wrote in a previous ABC Learning post, it has traded at over $8.00 at its peak about 18 months ago. Since then, it's share price have been on steady (and at times alarming) decline. It reached a new low of 65 cents yesterday.

Earlier this month, a placement of 71.5 million shares at $1.15 to MSPE and Lazard raised $82 million dollars. This represents 15% of the company's issued shares (the most that can be raised without shareholder approval). Since then general market weakness and some poor ABS publicity has left MPSE and Lazard sitting on a reasonable sized paper loss (although ABC Learning shares have recovered a little to close at 73 cents today.

Some of the cash raised along with some of the proceeds of the sale of its US operations are apparently going to be used to pay down debt. Hopefully more reasonable debt levels will reassure investors as to the long term viability of the company.

Surely the underlying business of ABC Learning is strong and profitable. Government childcare subsidies are on the rise again. And ironically, yesterday with its shares plumbing new lows, ABS had announced that it was raising child care fees by 10%. Although such a fee increase generates a lot of negative publicity, it demonstrates the strength of ABC's business.

While I find this to be a very interesting investment opportunity, there are 3 things which hold me back. First off, I find it hard to get a handle on what's happening inside the company. I read the announcements but they don't seem to contain quite enough information for me to be comfortable with the financial position of the company.

Secondly, I suspect the main risk the company faces (apart from its high debt levels) is weakness in the Australian job market. Predicting such things is well beyond my capability but with rising interest rates and declining consumer confidence, the unemployment rate may well continue to rise.

And last, but certainly not least, the Australian Stock Market currently presents a number of other lower risk investment opportunities. The current share price weakness sees many blue chip companies trading at the most reasonable valuations in years. Every time I look at ABC Learning, I can't help thinking about what better opportunities there may be.

ABC Learning (ABS) Price Crash - Is It A Buying Opportunity?

ABC Learning (ASX Code ABS) shares plummeted yesterday. ABC Learning shares - listed on the Australian stock market - reached an intra-day low of $1.15 before closing the day at $2.14. Shares are now in a trading halt. The current price is a far cry from the peak of over $8.50 reached early last year.

ABC Learning's drop in share price was apparently triggered by a lower profit result and investor concerns over high debt levels. To be honest, I haven't followed this company terribly closely over the last couple years as I thought it was way too expensive. But the market appears to have been concerned that the company's lending covenants contained provisions related to shire price or market capitalization. The company has since released a statement that this is not the case and that it's not in breach of it's lending covenants.

I just heard on ABC News that 1 director of ABC Learning sold shares just before the share price plunged. And 19 million shares were sold yesterday by CEO Eddie Groves and his wife. From what I understand, a large portion of the stock owned by Groves was exposed to margin loans and that's what triggered his selling. That was after Groves had told the Australian Financial Review that he would be safe from any margin calls. On top of that, it seems that while Groves was telling the market that the fundamentals of the company remained strong, his lenders were dumping his shares to meet margin calls. While nobody knows for sure there was a margin call, at would seem to be the case given the large number of shares the Groves' sold.

Insider trading laws will be put to the test with one director selling shares just before the share price drop. From what I understand, the sale was due to a margin call. But the director would not normally have been allowed to trade shares immediately before the profit was announced. While I don't know the insider trading laws very well, this does seem to be an anomaly.

And just to complicate things further, as part of the request for a trading halt this morning ABC Learning also indicated that there was a potential buyer for parts of it's business. What does this mean? Is the company under pressure due to its high debt levels - so much so that it may need to sell off part of the business to pay down it's debt levels.

I haven't been able to confirm it, but everyone is saying that this was triggered by the sub-prime mortgage melt down in the US. I presume that as ABC Learning has refinanced its debt, it's had to pay more as lending have become a lot more cautious about risk.

While I haven't been through the figures yet, I think anecdotal evidence suggests that I should be staying away from the company for now. But I will certainly have a closer look at recent ABC Learning financial statements because these situations of doom and gloom can sometimes provide great stock market investing opportunities.

Update:
I Have since written more about ABC Learning.