Langton Capital – 2018-10-10 – Pat Val confirms irregularities, suspension etc.
EATING HUMBLE CAKE…?
Doesn’t happen very often but there’s a second email from us today. See below:
PATISSERIE GROUP SHARES SUSPENDED
• Pat Val has effectively confirmed the Sky story. See earlier email. It does not mention the magnitude but says the potentially fraudulent misstatement has ‘significantly impacted the Company’s cash position’.
• CAKE says it became aware of irregularities only yesterday.
• That in itself is telling. If the numbers are potentially ‘materially’ misstated, then why was this not found earlier?
• CAKE says the potential fraud has ‘significantly impacted the Company’s cash position and may lead to a material change in its overall financial position.’
• Its shares – and its CFO – are to be suspended.
• CAKE says ‘the company will ‘make further announcements in due course as the results of the investigation become known.’
• Executive Chairman and largest shareholder Luke Johnson comments ‘we are all deeply concerned about this news and the potential impact on the business.’
• Mr Johnson continues ‘we are determined to understand the full details of what has happened and will communicate these to investors and stakeholders as soon as possible.’
• Langton Comment: Bandying around words like ‘significant’, ‘material’, ‘potential fraud’, ‘full investigation’ and ‘suspended’ (twice) will have shareholders spitting up their cornflakes.
• Best case is this is all a dream.
• More realistically (but still nearly the best case), the numbers on which CAKE’s fan club has based its forecasts were perhaps wrong.
• Hence its growth was wrong, its rating is wrong, even its cash position may need to be ‘materially changed’ and the company has been perhaps fundamentally misunderstood by the market which had awarded it a challenging growth rating of 23x earnings or so in a tough market for F&B.
• The stock market doesn’t like shocks, doesn’t like to be made to look foolish etc. etc. And it doesn’t like to blame itself, would rather point the finger at others, etc. There will be questions asked in due course of the CFO (immediately) and later of the advisors, the executive chairman, larger shareholders and the like.
• On a very, very slightly brighter note, the company has moved quickly to bring this into the open. That is to be welcomed but the payback in terms of shareprice fall, slipped halo, churn of the share register as fanboys get out etc., is likely to be significant.
• However, there’s nothing to be done at the moment. The shares are suspended.