Cavalier shares rise on optimism new board will boost performance

Shares in Cavalier Corp [NZX: CAV] are the biggest gainer on the S&P NZX Capital Index today on investor optimism changes in the governance of the carpet maker may be able to turn around its poor performance.

Cavalier, whose shares have lost half their value over the past year, jumped 20% to 54c, outpacing a 0.4% gain in the overall index. Still, the shares remain significantly below a peak of $4 in 2011 and an all-time high of $5.70 in 2003.

The company's stock has gained 54% since it announced last week that chairman Alan James would step down after 22 years with the company, which he initially joined as chief executive, and said three new directors would join the board. At the company's annual meeting in November, Mr James defended his board and management from shareholder criticism about the company's poor financial performance, suspension of dividends and slumping share price.

"Investors have been very disillusioned with the way the company has been run," said Brian Gaynor, executive director at Milford Asset Management, which doesn't own any shares in Cavalier.

"The company under the previous board was really struggling," Gaynor said. "If a company has been performing very badly and the board has been severely criticised by shareholders, particularly the chairman, and then it makes major changes, that's looked upon as being very positive by investors. I would call it a relief rally. There is a glimmer of hope whereas two weeks ago there wasn't much of a glimmer of anything."

In May, Cavalier said chief executive Colin McKenzie would step down ahead of asset write downs that will result in a full-year loss for the company. Its first-half results, published in February, showed a 99% drop in profit for the six months ended December 31, reflecting a strong New Zealand dollar, higher wool prices and low wool grease prices.

Milford's Gaynor said he expected the new board would undertake a thorough review of the company's operations, encompassing its manufacturing operations and its strategy toward wool.

"Changing the board is only the first step. It doesn't change the whole thing but at least now there will be certain investors who view that there is a hope for the company," he said.

(BusinessDesk)