Saturday, July 03, 2004
Don't crisis play on train lines
The 'crisis play'. An investment colloquialism, meaning a speculative investment in a company in serious danger of bankruptcy. On Friday Jarvis, the rail maintenance and construction group joined the stock market's equivalent of death row, with a terrifying announcement on trading. Jarvis' balance sheet needs the Heimlich manoeuvre and a cash transfusion.
Not only has Jarvis let down its shareholders, it has failed customers, partners and most tragically the public. Separate to informing the market of discussions with its lenders regarding appropriate financing arrangements for the group in future Jarvis accepted blame for the death of a child that fell onto a length of track that the company had failed to secure. Back in April, Jarvis finally admitted responsibility for the Potter's Bar derailment, after months of claims that the disaster which resulted in seven deaths was caused by sabotage. Jarvis' incompetence does not stop at rail maintenance. Accounting shenanigans required the company to hold back payments in the construction division in an effort to boost profits. Jarvis is imbroiled in a number of disputes with partners and suppliers over payments and terms. Elizabeth Taylor has more chance of recovering her looks than Jarvis does of regaining any repute amongst industry or the public.
This litany of failure will consign Jarvis to nothing more than a case study in business failure. The company is the antithesis of public relations. Past performance awards any potential customer an immediate excuse for not dealing with the company and no possible white knight would sully their reputation trying to save a company with blood on its hands.
The banks are in charge at Jarvis now and a turnaround by management looks fanciful, with the board fully committed just to keep the company afloat. But there is the chance Jarvis might survive the financial earthquake underneath it. This possibility will attract some, who judge the market valuation of Jarvis to imply impending bankruptcy, to speculate on a revival. Such an escape would return several times the initial investment but the return on failure is a wipe-out. This is the appeal of the crisis play.
Jarvis is several accidents that have already happened. There is no investment case for Jarvis, it is on the brink of extinction. Any money that can be made can only be done so at very high risk. This is true of all crisis plays and why I always stay well clear. Adrenaline has no place in investing.
The Artful Dodger
Not only has Jarvis let down its shareholders, it has failed customers, partners and most tragically the public. Separate to informing the market of discussions with its lenders regarding appropriate financing arrangements for the group in future Jarvis accepted blame for the death of a child that fell onto a length of track that the company had failed to secure. Back in April, Jarvis finally admitted responsibility for the Potter's Bar derailment, after months of claims that the disaster which resulted in seven deaths was caused by sabotage. Jarvis' incompetence does not stop at rail maintenance. Accounting shenanigans required the company to hold back payments in the construction division in an effort to boost profits. Jarvis is imbroiled in a number of disputes with partners and suppliers over payments and terms. Elizabeth Taylor has more chance of recovering her looks than Jarvis does of regaining any repute amongst industry or the public.
This litany of failure will consign Jarvis to nothing more than a case study in business failure. The company is the antithesis of public relations. Past performance awards any potential customer an immediate excuse for not dealing with the company and no possible white knight would sully their reputation trying to save a company with blood on its hands.
The banks are in charge at Jarvis now and a turnaround by management looks fanciful, with the board fully committed just to keep the company afloat. But there is the chance Jarvis might survive the financial earthquake underneath it. This possibility will attract some, who judge the market valuation of Jarvis to imply impending bankruptcy, to speculate on a revival. Such an escape would return several times the initial investment but the return on failure is a wipe-out. This is the appeal of the crisis play.
Jarvis is several accidents that have already happened. There is no investment case for Jarvis, it is on the brink of extinction. Any money that can be made can only be done so at very high risk. This is true of all crisis plays and why I always stay well clear. Adrenaline has no place in investing.
The Artful Dodger
Comments:
Post a Comment
