E&P’s ‘dishonourable’ decision to turn back on shareholders

A major E&P shareholder has admonished the firm’s decision to turn its back on shareholders and take the company private, just as the share price is starting to recover.

It was announced in late September that E&P would seek to delist from the ASX, and this was approved by shareholders at an extraordinary general meeting on 1 November. However, the vote was only narrowly approved with 76 per cent voting in favour, having needed 75 per cent to pass.

Lee Iafrate, executive chairman at The Australian Wealth Advisors Group (AWAG) who held a 8.3 per cent stake, said the share price had been recovering in recent months and he was disappointed they would not benefit from the turnaround. 

Over five years, shares in E&P were down by 47 per cent but over the last 12 months, they had begun a turnaround and were up by 17.5 per cent.

In its FY24 results in August, chief executive Ben Keeble said: “With legacy issues resolved and business rationalisation complete, the active focus for the group is on returning EP1 to long-term profit growth and restoring value for shareholders.

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“The start of FY25 has been promising, with July trading consistent with the improved performance in the second half of FY24. The implementation of strategic initiatives aimed at driving revenue growth and enhancing operating margins continues to progress as planned.”

Iafrate said the firm had purchased shares in E&P in its activist fund at “the low 30s” [cent per share] as he believed the share price would turnaround in due course once the backlash had died down. He later sold them at 50.5 cents per share in light of the delisting.

“E&P was emotional and had a history of failure. It was one of Australia’s worst financial scandals. It was a nightmare, and pretty horrendous how it happened. But buying the shares was a profitable exercise in the end. We got a 23 per cent return. 

“It was not the bonanza we hoped for as we had internal valuations of 60–65 cents per share which would have been a 40 per cent return, but 23 per cent is still a respectable achievement.”

When asked why he thought E&P opted to delist the business, he admonished the management for turning its back on shareholders when it was starting to recover.

“The H2 results showed the firm was turning a corner. It would have been more honourable to let the shareholders benefit from that, given the horrendous losses they endured. Only a handful of shareholders will have done well from the delisting.

“It would take a long time to get the confidence back in the entity, but the stock would have eventually re-rated and they might have gone on to pay a dividend.”

He said the firm is now investing its activist fund in two other companies which “have identical characteristics” to E&P and envisages having a more collegiate relationship with these companies to help turnaround the share price.

It was announced in September that Dixon Advisory, which collapsed in 2022 and was owned by E&P, will be subject to a public inquiry by the Senate economics references committee. The inquiry will probe “the reasons for the collapse of wealth management companies, and the implications for the establishment of the Compensation Scheme of Last Resort (CSLR) and challenges to its ongoing sustainability, with particular reference to Dixon Advisory and Superannuation Services Pty Limited (Dixon Advisory) as an example”.