WELLCO, THE ALTX-LISTED COMPANY THAT services health-product niches, is displaying all the symptoms of debilitating corporate stress disorder. The group’s balance sheet is stretched, the cash flow measures dangerously low and net asset value is a mere blip. It’s in such situations that pressure at HQ often sees directors prone to desperate acts… such as issuing shares for cash when the company’s share price is bombed out.
However, a few braver punters may well be prepared to look past those rather sickly fundamentals. They may sense a stronger pulse after Wellco announced an international supply agreement for a licensed malaria product that will “materially enhance the turnover of the company in the year ending February 2008”. The product is aimed at certain African countries via the respective health and development aid programmes. But the deal still hinges on the registration of the product in those countries as well as the completion of a technical due diligence of the facilities and manufacturing capability.
The deal also means that cash-strapped Wellco has to exercise an exclusive option to acquire 100% of the intellectual property of the product for R580 000.
How exactly Wellco – whose profit predictions have been somewhat wonky – will ensure that R580 000 translates into a material enhancement of turnover in 2008 is anyone’s guess. Scepticism aside, a more telling notice appeared after the initial “malaria product” press release – disclosing the supply agreement was valued at approximately US$4m (R30m).
But then comes the clanger. Because of the timing of the supply agreement, Wellco won’t meet its forecast results for the year ended February 2007.
What unmitigated bulltwang for directors to infer that the malaria contract is in some way responsible for the company not meeting its 2007 forecast. The timing of the malaria contract – which was never a factor in Wellco’s corporate make-up – seems like an all-too-convenient scapegoat to mask some serious corporate deficiencies.
And if you think the market’s taking a dim view of developments, consider that less than half of the envisaged 15m shares issued for cash were fully paid for by (unnamed) international investors.
At this point, avoid Wellco like the plague…