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Why the Superloop share price dropped 15% lower today

The Superloop Ltd (ASX: SLC) share price has been amongst the worst performers on the All Ordinaries index on Thursday.

In morning trade the connectivity services provider’s shares fell as much as 15% to a 52-week low of 90 cents.

Superloop’s shares have recovered a good portion of this decline now, but still sit 5% lower at $1.00 at the time of writing.

Why did the Superloop share price crash lower today?

Investors were quick to hit the sell button this morning following the release of its chairman’s letter to shareholders.

That letter provided the market with an explanation for the recent earnings guidance downgrade which has led to its shares falling heavily this month.

The letter explains:

“… Superloop had been in the final stages of a material one-off transaction that would have delivered a result well within the guidance range for the 2018/19 financial year. However, in the final days of the 2018/19 financial year, your Board became concerned that the proposed terms of the transaction were not in the longer term interests of your company. Accordingly, on 30 June 2019 the Board declined to accept the terms of that transaction as it stood and requested that management seek to negotiate more favourable terms. The company immediately updated the market before the re-commencement of trading on 1 July 2019. Negotiations of the transaction continue.”

The chairman’s letter also revealed that the company is withdrawing its guidance for FY 2020 which was provided in February with its half year results. That guidance was for statutory EBITDA in the range of $26 million to $30 million.

The release explains that the company has formed the view that insufficient certainty now surrounds this guidance, but that it is not yet in a position to update it.

It intends to revise this guidance on completion of the FY 2019 results and the finalisation of its budget for the new financial year and its longer term model.

Shareholders won’t have to wait long, though. Superloop intends to release this new guidance in just under two weeks on August 1.

Looking ahead, the chairman revealed that: “Management remains strongly focused on the matters that will continue to deliver value to shareholders. This includes strong focus on sales momentum, customer retention, collections and control on capital expenditures. Additionally, the company has commenced a review of its operations to deliver further operational efficiencies.”

This hasn’t been enough to keep some shareholders from jumping ship today.

Elsewhere on the market today, the CIMIC Group Ltd (ASX: CIM) share price has crashed 18% lower following a weak half year result and the Wattle Health Australia Ltd (ASX: WHA) share price is down 10% following an update.

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James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of SUPERLOOP FPO. 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 Scott Phillips.

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