Vocation Ltd (ASX: VET) shareholders endured another horror week last week during which time the shares plunged just under 26%. They closed 9.1% lower on Friday at 10 cents, compared to their 13.5 cent price tag a week before.
Vocation is a name familiar to many Australian investors, but for all the wrong reasons. The embattled education provider debuted on the market in December 2013 and peaked at $3.40 per share in September last year. Since then however, the stock has plummeted more than 97% and now boasts a market capitalisation of just $24 million, according to Google Finance.
The problems all began when Vocation was forced to surrender $19.6 million in government funding from the Victorian Department of Education and Early Childhood Development (DEECD). Prior to that, the company's then CEO Mark Hutchinson had been adamant that no reviews into its businesses were expected to be material to Vocation's earnings, while little reputational damage was expected to be inflicted on the business. As it turns out, they couldn't have been more wrong on either count.
Since then, the transparency of management has been called into question while a number of class actions have also been launched against the group, including one by Slater & Gordon Limited (ASX: SGH). Meanwhile, a number of profit downgrades have been issued while the company said just last week it expects earnings to be between $3 million and negative $3 million for the full year.
The Outlook
After months of heavy criticism, Hutchinson finally announced his resignation from the business earlier in the year with Mr Stewart Cummins having taken his place. The market responded very positively to Cummins' appointment given his track record for successfully turning businesses around.
Cummins has made a number of necessary moves in his short-term at the helm of Vocation. Under his direction, Vocation has sold-off a number of non-core business units which has raised $85-95 million of gross proceeds, heavily reducing debt and allowing it to secure the continued support from its banking syndicate, made up of Westpac Banking Corp (ASX: WBC), Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd. (ASX: NAB).
As can be seen in the diagram below, Vocation has trimmed down significantly, cutting its non-core divisions and discontinuing those that sparked the issue in the first place – BAWM Group and Aspin.
Source: Vocation market update
Should you buy?
Management has expressed its confidence in its ability to return to profitability under this new structure, but investors shouldn't rely too heavily on this alone.
Vocation's reputation has been severely damaged and investors are justifiably unhappy about the way management has treated them over the last nine months or so – it's going to take a lot to win the market's full confidence again. As a result, investors would be wise to remain on the sidelines until it has proven its ability to function under its new capital structure.
In saying that however, investors with a high tolerance for risk and some spare cash laying around could look to put a small amount to work in the business. Although there is a very real risk that the stock will never make a full recovery, there is also the chance that Vocation could be a turnaround under the leadership of Cummins which could yield enormous returns if everything goes right for the business in the future.
As is always the case however, investors should ensure they maintain a diversified portfolio and ensure they only ever invest the money they can comfortably afford to lose in the possible event that Vocation's recovery doesn't play-out as planned.
