Criterion: Are companies in crisis worth a punt after they cross the valley of death?

In the case of Wisetech Global and Super Retail Group, investors have forgiven corporate governance related crises
Dubber has been well supported in two capital raisings, despite $30 million vanishing from its account
The Lark Distilling experience shows the ‘catch a falling knife’ strategy doesn’t always work

Crisis, what crisis? Unless it’s a transgression that kills a company financially, shares in troubled companies have a habit of bouncing back sooner than you would think.

The WiseTech Global (ASX:WTC) experience shows bold investors can benefit by investing in the eye of the storm, with the stock recovering 25% from its mid-October woes amid tawdry allegations surrounding Wisetech founder Richard White’s private life and business dealings.

White stepped down as CEO in October 24 in the week of bullying and intimidation claims, as well as other allegations including misuse of company funds and failing to disclose a personal relationship “of a romantic, familial longstanding nature’”

Last month a company-ordered review by two law firms cleared him of wrongdoing. But problems remain, including this week’s $200 million share sale by a director.

Another exemplar is Super Retail Group (ASX:SUL), which in April disclosed a potential $30-$50 million legal claim from two former female whistleblower employees.

The allegations include non-disclosure of an affair between chief executive Anthony Heraghty and the group’s former HR head Jane Kelly (not a party to the proceedings).

The claims allege bullying, victimisation, inappropriate travel expenses, unreasonable workloads and unsatisfactory company record management.

The company said none of the allegations had been substantiated and is “vigorously” defending the two Federal Court claims served by the women.

The toxic brew of allegations sent Super Retail down as much as 15%, but from that low point they have recovered 17% (and as much as 45%).

Then there’s the unfolding saga of call-recording service provider Dubber Corp (ASX:DUB), which on March 1 revealed that $30 million intended for a term deposit had gone missing, $3.4 million of which had been recovered.

Post crisis Dubber maintains the support of Thorney Investments, which extended a $5 million emergency loan and then sub underwrote a placement and rights issue that bought in $24 million, $16.4 million from retail holders.

“Unquestionably we were shocked by Dubber’s recent announcement,” Thorney chief Alex Waislitz said. “Notwithstanding, Thorney continues to believe Dubber has sound prospects having built a substantial global client base that includes many tier one communications service providers.”

Dubber shares have declined from 10 cents post-event to a low of 2 cents. At the time of writing the company traded at 2.7 cents – not a convincing bounce but still a 35% increment for the bottom trawlers.

Performance-wise, the company looks to have weathered the scandal.

At Dubber’s AGM last month, management claimed there was little customer churn during the “turmoil of these unexpected circumstances”.

In the September quarter Dubber generated revenue of $10.1 million, up 11% year on year with cash outflows of $8 million. The company guides to cash-flow breakeven status by next June.

Of course, the ‘catch a falling knife’ strategy doesn’t always work. In the case of Nine Entertainment Company (ASX:NEC) and Mineral Resources (ASX:MIN) the shares are yet to recover from the airing of serious governance and cultural issues.

In the case of Mineral Resources, in early November a board inquiry carried out by external lawyers concluded that founder and by then ex CEO Chris Ellison used company resources for personal gain. Ellison accepted a penalty of $8.8 million and a $9.6 million loss of remuneration.

Lark Distilling Co (ASX:LRK) shares never recovered after CEO Geoff Bainbridge resigned in February 2022 after images emerged of him appearing to smoke a meth pipe.

Captain Sensible says it’s better to invest in companies with sound performance and corporate governance in the first place.

But when boards avail of a crisis to lift their company’s game, investors can reap huge rewards.

This story does not constitute financial product advice. You should consider obtaining independent advice before making any financial decision