DJ FrontLine Capital Down-2: 52-Week Low Set For Second Day
16 May 14:27
By Dinah Wisenberg Brin
Of DOW JONES NEWSWIRES
PHILADELPHIA (Dow Jones)--FrontLine Capital Group (FLCG) shares slid as much
as 18.4% Wednesday, setting a 52-week low for the second straight day, an
apparent aftershock to a disappointing earnings report that slammed the stock
last week.
FrontLine shares plunged 33% Friday after the holding company, which operates
a short-term office-lease business, reported that first-quarter revenue and
income in that enterprise had declined from the previous quarter. The company
blamed the decline on the U.S. economic slowdown, which was worse than
expected. The company said revenue and operating margins in that business were
likely to decline further in the second quarter.
Analyst James Wilson of Jolson Merchant Partners, the only firm that follows
FrontLine, knew of nothing new driving the stock down Wednesday, suggesting
that perhaps "somebody looked at it and spent more time who didn't sell on
Friday, and said, 'Maybe I'll sell today.' "
FrontLine Chairman and Chief Executive Scott Rechler agreed.
"It's remnants of last week and the earnings announcement," Rechler told Dow
Jones Newswires. "I think that at this point they're overreacting."
Analyst Wilson, who rates FrontLine a "hold," noted that its primary business
is HQ Global Workplaces, which provides short-term "plug and play" office
suites to companies needing temporary space with full amenities.
Many of HQ Global Workplace's tenants are technology and telecommunications
companies, he said.
"Some of the small ones have disappeared and most of the big ones have been
downsizing," Wilson said. Jolson Merchant Partners also is an HQ Global
Workplaces tenant.
After FrontLine gave its outlook late last week, Wilson significantly slashed
his 2001 EBITDA - or earnings before interest, taxes, depreciation and
amortization - projection for the company.
FrontLine previously was an Internet investment vehicle compared to CMGI Inc.
(CMGI) and Internet Capital Group Inc. (ICGE), but has sold two of its three
main Internet-related ventures. CEO Rechler said HQ Global accounts for more
than 99% of the business, and FrontLine owns 59% of that enterprise.
FrontLine overall reported a loss of 91 cents a share in the first quarter,
compared with a loss of $1.27 a share in the same period of 2000. The parent
company and non-HQ Global interests posted losses, while HQ Global had $26.4
million in operating income, a $5.9 million increase over the year-ago period.
HQ Global operating income, however, declined $11 million from the fourth
quarter.
Rechler remains optimistic on HQ Global's future, saying the economic
slowdown hit it earlier than others, but that the company should recover
earlier as well.
"We just think that we're going through a natural part of a cycle," he said.
FrontLine has said it is in the midst of a restructuring that's slowing its
burn rate and which should provide long-term benefits. Rechler reiterated that
FrontLine continues to seek a way to give investors a direct interest in HQ
Global by the end of the second quarter, perhaps through a reverse merger or
sale of some sort; the aim is to collapse the holding-company structure to give
investors direct access to the core business, he said.
Shares traded recently at $4.59, down 84 cents, or 15.5%, on volume of
366,600, compared with average daily volume of 348,800.
Earlier, it traded at $4.45 a share, beating the previous 52-week low of
$5.35 a share set Tuesday. Monday's low matched the 52-week trough of $5.41 a
share set Friday.
-By Dinah Wisenberg Brin, Dow Jones Newswires; 215-656-8285;
dinah.brin@dowjones.com
(END) DOW JONES NEWS 05-16-01
02:27 PM |
