Ventia shares extend losses on price fixing allegations
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The news: Shares in Ventia Services Group continued to slide in early trading on the ASX, despite Macquarie calling the market's reaction to price fixing allegations by the Australian Competition and Consumer Commission (ACCC) as "overdone".
The numbers: Ventia shares were down 6.2% to $3.13 by 10:30am AEDT, having plunged 22.6% on Thursday.
Downer EDI which was also named in the case was down 0.65% to $5.34 after falling 5.95% on Thursday.
The context: Macquarie cut its target price on Ventia by 9% from $4.66 to $4.26, reflecting increase in discount to global peers from -5% to -15% on heightened uncertainty given the ACCC's civil cartel proceedings.
Macquarie analysts said that Ventia's work with the Department of Defence, the subject of the Federal Court case, comprised 18% of the company's first half revenue in FY24, while public sector work more broadly comprises around 75% of its revenue.
However, they noted that Thursday's hefty sell-off in the stock was an overreaction, projecting only an 8% earnings-per-share impact if Ventia lost all of its near-term defence tenders.
Macquarie added that it is unlikely that Ventia will lose the entirety of its Defence-related work, particularly given a number of existing contracts have years left to run, and that Defence awarded $173 million worth of contracts to Ventia in the last 18 months while the ACCC's investigations have been proceeding.
Elsewhere, Morgans downgraded Ventia from 'add' to 'hold' and slashed its target price from $4.80 to $3.30, noting that proceedings create "both earnings and perception uncertainty", something that will "likely weigh on the stock for some time".
The source: Macquarie research
