Can scandals create buying opportunities?

Buy Hold Sell

Both the reputation and the share price of listed retirement village operator, Aveo Group, have taken a big hit recently. With this backdrop, we ask Dean Fergie of Cyan IM and Ron Shamgar of TBF, how investors can quantify reputational risk, and whether situations like Aveo’s can create buying opportunities?

Key points:

  • Two aspects to reputational risk: 1) How does it affect the financials of the business? 2) How do company practices sit with investors on a moral basis?
  • Companies recover from reputational issues: E.g.: Domino’s franchisee issues; Samsung batteries; Google’s antitrust challenge.
  • Cyan doesn’t see the ~20% pullback as a buying opportunity. Prefers to let other investors try and pick the bottom of the pullback.
  • TBF considers the adverse publicity on Aveo as unlikely to be terminal, however puts a Sell on it, due to adverse reputational and ethical pratices. TBF would require regulatory changes to be implemented to industry to prevent the issues seen with Aveo, and to see how business performs in these conditions before assessing, which will take a long time.

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Buy Hold Sell

Buy Hold Sell is a weekly video series exclusively available through Livewire. In each episode two fund managers are asked for their views 'Buy, Hold or Sell' on five ASX listed companies. The format is meant to be short, sharp, insightful and...

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