Brawling At BPS Technology

By Tim Boreham | More Articles by Tim Boreham

BPS chief Trevor Dietz says it’s now “peace in our time” after a bruising shareholder revolt that almost saw the board of the Gold Coast based payments company overthrown at a recent shareholder meeting.

BPS shares last week slumped to record lows, the obvious explanation being that management’s pledged reforms will not be enough to allay the concerns raised by the dissident holders, Alceon and LHC Capital Partners.

As it happens, there was an even more obvious reason: at the time of writing, the stock had entered trading halt ahead of a capital raising.

With a combined stake of 8.8 per cent, Alecon/LHC alleged poor corporate governance and performance shortcomings at BPS, best known for its Bartercard platform for SMEs to trade in kind, rather than cash.

In response to an ASX query on the share slump, management attributed the trading volumes – nine times higher than normal – to “associated parties who recently called the EGM’’ selling out.

So it’s not clear whether Alceon and LHC remain holders.

The funds’ motion to remove four directors and install four of their own fell short, with around 48 per cent of the votes cast in favour. But given 37 per cent of BPS is held by by Dietz and fellow directors Tony Wiese and Brian Hall, the vote was an almighty kick in the pants for the incumbents.

While strenuously rebutted the performance claims, the board had already agreed to hire two new independent directors and Dietz will retire in the New Year.

The company will also excise $6m of costs and improve shareholder communications.

The board agrees that Bartercard “has not performed to expectations”, but contends the division is doing better than what Alceon/LHC implies.

Dietz says BPS has had “cordial and constructive” discussions with lead antagonist Alceon. “We bear the convening shareholders no ill feeling,” he says. “This is not a case of victor and victim.”

Like voters in Bennelong and New England, BPS holders are suffering a surfeit of democracy as the company’s AGM is scheduled for November 27.

The notice of meeting contained now-redundant motions to reinstate the current directors had they been kicked out at the Nov 3 meet.

Instead, chairman Murray d’Almeida will seize the chance to detail the company’s strategy, which involves a hastened move to a digitised platform and more of a ‘business to consumer’ strategy based on the Entertainment Book (EB) business.

BPS in 2016 paid $22m in cash and $2.4m in scrip for EB, a tome of freebie and discount vouchers sold as fundraisers by charities and community groups.

While 42% of users access an online version – up from 25 per cent at the time of purchase – BPS still prints 500,000 physical books at a cost of around $10 per book.

On Wednesday, management soothed the market somewhat by announcing that current-year revenue and earnings were likely to be no less than the $110m and $10.3m respectively chalked up in 2016-17.

Because of lumpiness in the EB operations, the bulk of EB revenues are accrued in the second (June) half so there may be cause to adjust this guidance when the trends become more apparent.

Still, BPS remain priced for failure on an earnings multiple of five times and a dividend yield of more than 7 per cent. BPS’s debt has climbed to $7.2m from $3.6m previously, a point not lost on the ginger group. But given that represented a debt to equity ratio of 7 per cent ahead of the rasiing, gearing is hardly at distressed levels.

Eighty years ago, Neville Chamberlain’s “peace in our time” was followed by panzer tanks crashing the Polish border. BPS stock is either a bargain, or cheap for a reason if the hostilities continue.

Tim Boreham

About Tim Boreham

Many readers will remember Boreham as author of the Criterion column in The Australian newspaper, for well over a decade. He also has more than three decades' experience of business reporting across three major publications.

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