Spotless Group Holdings Ltd shares rocked by bad news reports

Credit: (Mick Baker)rooster

Shares of Spotless Group Holdings Ltd (ASX: SPO) have rebounded from their all-time lows, but it seems investors shouldn’t get too comfortable just yet.

An article in The Sydney Morning Herald on Wednesday highlighted a number of issues within the cleaning and catering services company which could prove damaging for the business, if proven to be true.

Some of the claims relate to racism or unfair treatment from managers, bad working conditions (e.g. poorly ventilated), as well as allegations that the linen (which is often bound for city hospitals and can be intended for use in sterile operating theatres) is kept in unhygienic areas.

The SMH showed photos of a party being held in areas where the linen is stored (the company told the SMH that this has already been dealt with and was not a party officially organised by the Spotless Group).

It should be noted that the company is aware of the allegations, according to The SMH, and is investigating the claims. A spokeswoman for the company was also quoted as saying: “Linen sorting, processes and hygiene are of the highest standards as you would expect, and are closely supervised, reviewed regularly and audited independently.”

While these are only allegations, the claims themselves don’t work wonders for the company’s reputation, especially in light of their recent profit downgrade. Spotless Group listed its shares on the ASX in May 2014 and it rose steadily for some time, but crashed suddenly late last year when it told investors that growth from new business wins had slowed. This was due to “tighter economic conditions and tender contracts being delayed or deferred.”

The shares are now trading for $1.04, up from a low of 90.5 cents but down from a $2.51 high. As a result of the heavy declines in its share price, it has been speculated that the company could be on the radar of cashed-up foreign investors. Looking to take advantage of a weak Australian dollar as well.

Of course, investors should not speculate or invest in a company simply because there is a chance it could become a takeover target, but an approach from an outside firm is possible.

I'm certainly not looking to buy Spotless Group shares for my own portfolio -- at least not yet -- although there are a number of other companies on my radar...

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Motley Fool contributor Ryan Newman has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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