From bras to cars, the curious tale of a meme stock darling

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Away from the relentless market spotlight on the biggest stocks you can find some of the more intriguing tales of corporate machinations. Take the bras to cars trajectory of Nasdaq-listed Cenntro Electric.

With a market value of about $85mn and sales of just 458 vehicles last year, the Chinese maker of small EV trucks is not troubling the likes of Tesla. But its corporate history has been eventful if nothing else.

In a brief period during the meme stock craze of 2021 and in a previous incarnation, it found favour among retail punters as lingerie seller Naked Brand Group.

Like other flagbearers of the meme stock madness such as retailer GameStop and cinema chain AMC, it had a familiar brand but struggling business — in this it case it sold lingerie online under the Fredericks of Hollywood label, as well owning Antipodean underwear stalwart Bendon, once fronted by supermodel Elle Macpherson and later Heidi Klum.

In January 2021, its shares rocketed 759 per cent under the stock symbol NAKD. Its boosters on social media were quick to dub themselves the Naked Army. From there, though, the rewards of shareholders and management started to diverge.

The share price of NBG fell away sharply but executive chair Justin Davis-Rice was still able to take advantage of its fame to raise more than $200mn for the company by selling stock in the months that followed.

Around the same time, though, NBG was completing the sale of the Bendon brand to Davis-Rice and former chief executive Anna Johnson for NZ$1. After the sale and the capital-raising, Davis-Rice talked up in April 2021 the strength of NBG’s bumper $270mn cash pile and sought deals that “could position Naked as a strong player in intimate apparel”.

By November, however, the deal that materialised was a takeover by Cenntro, which took over the listing and control of the company. For about 70 per cent of NBG in newly-issued shares, Cenntro reversed its fledgling EV maker into NBG and inherited $280mn in cash. At the same time, it sold the Fredericks bra business to Davis-Rice and Johnson for A$1.

Cenntro founder Peter Wang said gaining the Naked Army and other loyal shareholders “was something that no IPO could achieve”. It changed its stock ticker to CENN and projected revenues of $25mn for 2021 plus vehicle sales of 21,500 for 2022.

But shareholders who stuck around from the NBG days have had a grim experience. The company’s shares have fallen more than 90 per cent since the deal closed and its operational performance has fallen far short of target. Even in 2022 figures just released this week, sales did not pass $9mn and its cash pile has dropped to $154mn.

Asked to comment, Cenntro pointed to “the extreme and unprecedented global challenges both the industry and management faced in 2022”. Those issues would have hit particularly hard for a company manufacturing in Covid-isolated China.

But in April this year, outgoing auditor Marcum Asia flagged concerns about Cenntro’s previously bullish forecasts. It said it was aware of “questions surrounding the company’s prior projected financial information” that could have caused issues for it as auditor, but that its dismissal meant it had not investigated.

In contrast to the plight of longstanding shareholders from the height of the meme stock craze, Davis-Rice has enjoyed significant rewards in recent years. In 2021, the board made him an award of phantom warrants — a form of compensation where the amount earned tracks stock moves, but is paid in cash.

If all the payouts from NBG’s phantoms went to Davis-Rice, it would have netted him about $36.7mn. By Bloomberg data on the latest chief executive pay, that would put him just outside the top 100 current best-paid of any US-listed company — even though he led a company that had lost $84mn over the previous two financial years.

There is also the sale of the two units to Davis-Rice and Johnson for less than $2. Those deals came with written-off liabilities and forgiven debt totalling $70mn, according to various Cenntro and Bendon filings. Their restored balance sheets have helped boost their performance. Bendon, Davis-Rice and Johnson did not respond to requests for comment.

Such disparities in rewards for shareholders and management might attract questions or even activist campaigns at big companies. In small companies, there is less scrutiny.

“In a very American sense we follow the money and the largest companies dominate in terms of performance and attention,” said Adam Epstein, of Third Creek Advisors, which works with small-cap boards. “No one focuses on governance when a stock is making new highs, but there’s even less attention when there’s very little coverage to begin with.”

Last month in a Telegram chat forum, one user posted “NAKD taught us patience… CENN taught us to HODL! [Hold On For Dear Life]”. Back in January another user promised if Cenntro’s shares hit $500 to get a tattoo including both names. The shares currently trade at about 37 cents. Its good to have dreams, but some more scrutiny might help those come true.

jennifer.hughes@ft.com