Slater & Gordon Ltd
SGH Details
Expanding debt Facility Structure: Slater & Gordon Ltd’s (ASX: SGH) lenders recently reported that they would get deferred amendment fees in the form of either cash or securities under Syndicated Facility Agreement as warrants. The lenders comprised 41.6% of total commitments and will receive SGH securities as deferred amendment fees. Lenders representing 58.4% of total commitments would get cash as deferred amendment fees. This is part of the reorganization strategy of SGH in which there is performance improvement program, profitability and cash flow improvement, and reduction of debt which would start realizing its full value by May 2018. Despite these efforts from the group, SGH’ legal division has contributed negative to the profit of the company due to lower than expected RTA and NIHL resolutions for which SGH has taken revised intake strategy from 1
st December 2015.
Facility Structure (Source: Company Reports)
In the first half of 2016, the gross operating cash flow was under pressure but the company is taking steps for multiple problems across its UK legal services businesses and has implemented cost cutting initiatives. But the group expects that there would be decrease in the pressure in the second half of 2016 which will reflect as positive operating cash flow. In addition, under UK reorganization the assessment of UK operations is completed in the first half 2016.
SGH had acquired two UK firms in 2015 has recently finalized the company’s largest ever acquisition of Quindell’s professional services division in the UK to expand its operations. We believe investors can leverage the low levels of SGH stock which has fallen 31.94% in the last six months (as of August 18, 2016). We give a “Speculative Buy” recommendation on the stock at the current price of $0.50
SGH Daily Chart (Source: Thomson Reuters)
Shine Corporate Ltd
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SHJ Details
Strengthening operating cash flow: Shine Corporate Ltd (ASX: SHJ) executed the settlement deed for DePuy Class Action for AUD $250,000,000 (inclusive of costs and disbursements) plus interest which was related to ASR hip implants that were defective in design. The settlement is expected to have a net positive impact on the Group’s Gross Operating Cash Flow in the first half of the financial year ending 30
th June 2017. Moreover, SHJ had the core business down in the first half 2016 due to lower income driven by sub-optimal fee earner to file ratios and under performance by some fee earners, both resulting in a reduction in WIP and income. SHJ is expecting the core business will be better in second half 2016.
FY 16 Guidance (Source: Company Reports)
However, SHJ has revised the FY2016 EBITDA guidance to be $24m-$28m downward due to the one-off provision uptake and also due to current business scenario. The total additional provision is a one-off amount of $17.5m and would reflect in FY2016. However, SHJ has received a favorable ruling from the Australian Taxation Office arising from the group’s restructure prior to a public listing in 2013 which was said to generate income tax benefits of $19.3 million.
Meanwhile, despite rising 78.29% in the last six months (as of August 18, 2016), the stock is trading at a very cheap P/E. We give a “Speculative Buy” recommendation on the stock at the current price of $1.26, ahead of its full year results on August 24, 2016.
SHJ Daily Chart (Source: Thomson Reuters)
IPH Limited
IPH Details
FY16 Results and acquisition ofCullens Patent and Trade Mark Attorneys: IPH Ltd (ASX: IPH) released FY16 result with 50% NPAT growth over FY15 while free cash flow rose to $39.1m from $30.4m. IPH acquired Cullens Patent and Trade Mark Attorneys for $35.6 million, with a potential of additional payment based on FY16 earnings growth, capped at $7.1m. The acquisition is expected to build the leading intellectual property group in secondary markets as it has substantial local client base.
FY16 Result (Source: Company Reports)
Moreover, in first half 2016 IPH had acquired Pizzeys and Callinans. The company had raised $51 million through share purchase plan to fund its acquisitions. On the other hand, IPH stock fell after the company did not meet the expectation in its earlier financial result. The group needs to increase the client base to have a lot of recurring revenue.
IPH stock has fallen 31% in the last six months (as of August 18, 2016). Despite this fall the stock is trading at an unreasonable P/E and will trade ex-dividend on August 23, 2016. We give an “Expensive” recommendation on the stock at the current price of $5.80
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IPH Daily Chart (Source: Thomson Reuters)
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