Out of the Frying Pan into the Fire

The last mile for this last-mile delivery software company has been nothing but misery.

GetSwift Ltd [ASX:GSW] listed on the ASX on 9 December 2016 at $0.265. The company had a fantastic run up to the end of 2017 when it touched a high of $4.60 before people started asking questions.

What happened to GetSwift share price?

The initial run had been led by a skeleton announcement regarding a ‘global deal with Amazon’ GetSwift announced to the market. The announcement itself was largely void of detail and triggered a large run up, forcing the ASX to suspend trading.

The company is led by ex-Melbourne Football Club player Joel Macdonald. Since leaving the AFL, Macdonald joined the top 100 richest young Australians with an estimated net worth well over A$100 million. However, recently he has been accused of misleading the public through failing to disclose material contracts or the deterioration of material contracts, to the public.

The company went into a trading halt back on 22 January this year, after The Australian Financial Review wrote an article on the 19 January suggesting the company had failed to alert investors of the deterioration of material contracts.

Accusations were also made that GetSwift had generally been misleading the full nature of the partnerships and contracts that had helped the tech company launch around 1800% from its IPO to the share price high.

The AFR specifically wrote about how Macdonald had said contracts with firms such as Fantastic Furniture and The Fruit Box Company had been signed and vetted by in-house counsel, before the statement was released to the ASX.

In relation to why he hadn’t then informed the market of the ‘contracts’ termination, Macdonald claimed ‘it’s not material now’ after saying the contract was actually pulled shortly after GetSwift made the statement to the market.

The trading halt was entered at a price of $2.92, and when it was lifted on 19 February the stock opened at 98 cents.

Although the company had released a response to ASX’s letter claiming it was comfortable that no further disclosure was required. Perhaps some investors regained confidence and that’s why stock bounced to a close of $1.31.

But the bounce went straight into the fire. This morning GetSwift advised investors it had been served by law firm Squire Patton Boggs with an application to commence class action proceedings against the company in Federal Court.

Ouch.

The class action is being pursued on behalf of shareholders who purchased shares in GSW between 24 February 2017 and 19 January 2018. Measurable damages are estimated to be about $300 million with litigation funders typically taking a minimum of 20%.

The claim has been filed on an open class basis meaning those who invested within the time period are automatically included, with an opt-out procedure expected to come at a later date.

The result?

Alongside this announcement, GetSwift opened around 40% lower, and at time of writing is trading at 56 cents, not too far from its initial offering price back in early December 2016.

The future for GetSwift

The future for companies entwined in legal proceedings and class actions is rarely a sunny one. You only have to look at Slater & Gordon’s stock chart for a window into this world.

People may also be weary to deal with companies embattled by legal proceedings

In conjunction with the class action, a question remains on the legal ramifications that may stem from the $100 million capital raising early December, of which the $75 million institutional component was allegedly ‘cornered’ by Fidelity International.

…As the old adage goes: usually the only winners in a class action are the lawyers.

Regards,

Ryan Dinse                                                        

Editor, Money Morning    

and

Jack Cameron,                           

Junior Analyst, Money Morning

PS: If you’ve been thinking it might be time to turn away from these more speculative small cap stocks, the team here at Money Morning has written a report on some larger players which pay out steady income as well as capital gains. The report is titled ‘Top 5 Dividend Stocks 2018’. Check it out here.


Ryan Dinse is a contributer at Money Morning. He has worked in finance and investing for the past two decades as a financial planner, senior credit analyst, equity trader and fintech entrepreneur. With an academic background in economics, he believes that the key to making good investments is investing appropriately at each stage of the economic cycle. Different market conditions provide different opportunities. Ryan combines fundamental, technical and economic analysis with the goal of making sure you are in the right investments at the right time.  


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