Slater & Gordon Ltd
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SGH Details
Restructuring efforts to drive growth: Slater & Gordon Ltd (ASX: SGH) have remained subdued from quite a while now and plunged over 92.9% (as of June 10, 2016) in the last one year. The decline in the stock is due to ASIC review on the firm, lower than estimated performance, management changes, class actions against the group and SGH’s removal from S&P/ASX 200 index. Moreover, the group’s legal division has contributed negative to the profit of the company due to lower than expected RTA and NIHL resolutions for which SGH has undertook revised intake strategy from 01 December 2015. In the first half of 2016, the gross operating cash flow was under pressure. As a result, the company is taking steps to deal with several issues across its UK legal services businesses and has implemented cost cutting initiatives. Recently, the group reported that its lenders representing 41.6% of total commitments would receive SGH securities in lieu of deferred amendment fees while lenders representing 58.4% of total commitments would receive cash as deferred amendment fees. The maximum expected dilutive impact of securities issued to warrant holders for SGH is 6.24% of the present issued ordinary securities. The company had also successfully agreed for bank facility amendments while this move by the group is a part of the reorganization strategy and would start realizing the benefits not until May 2018.
Accordingly, the group’s stock started recovering over 19.44% in the last three months (as of June 10, 2016) and has a lucrative dividend yield. Given the group’s various steps to increase the shareholders’ value, we give a “Hold” recommendation on the stock at the current price of $0.405
SGH Daily Chart (Source: Thomson Reuters)
Shine Corporate Ltd
SHJ Details
Revising provisioning methodology: The shares of Shine Corporate Ltd (ASX: SHJ) dropped over 61.8% in the first two months of the year itself (from Jan 04, 2016 to March 01, 2016) as the group issued a weaker guidance for fiscal year of 2016. SHJ was also removed from S&P/ASX 100 from March 18, 2016. The group has revised the FY2016 EBITDA guidance to be in the range of $24 million to $28 million against $54 million in the prior corresponding period on the back of one-off provision uptake and also tough business scenario. The total additional provision is a one-off amount of $17.5 million which would reflect in FY2016 performance. SHJ is revising provisioning methodology and hence the intended increase in provision. The company’s acquisition business contribution is slow in the first half 2016. Moreover, SHJ core business was 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. The other factor for the fall of core business are greater than expected write-offs and continuing market competition, especially in Queensland. On the other hand, the group guided that they expect a better performance in core business for second half of 2016.
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EBITDA Guidance (Source: Company Reports)
Recently, the group also executed the settlement deed for DePuy Class Action for AUD $250 million (inclusive of costs and disbursements) plus interest which was related to ASR hip implants that were alleged to be 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 June 30, 2017.
Consequently, SHJ stock has recovered by 48.73% in the last three months (as of June 10, 2016). Trading at an attractive P/E and having a decent dividend yield, we place a “Hold” recommendation on the stock at the current price of $1.20
SHJ Daily Chart (Source: Thomson Reuters)
IPH Ltd
IPH Details
Expanding business via acquisitions: IPH Ltd (ASX: IPH) recently reported that they acquired Cullens Patent and Trade Mark Attorneys for $35.6 million, with a potential of additional payment based on FY16 earnings growth, capped at $7.1 million. This is a strategy to build the leading intellectual property group in secondary markets as it has substantial local client base. The acquisition is expected to be completed by 30 June, 2016. Meanwhile, the group has been expanding its business via acquisitions earlier as well by acquiring Pizzeys and Callinans. IPH’s subsidiary, Spruson & Ferguson has lately opened office in Thailand. The company had raised $51 million through share purchase plan to fund its acquisitions and other activities. IPH stock was also added in S&P/ASX 200 Index after March 18, 2016 market close. On the other hand, IPH stock fell over 24.75% (as of June 10, 2016) during this year to date as the company’s first half of 2016 performance did not meet the expectations. Moreover, there have been concerns over the group’s dependence on acquisitions for growth against organic route. IPH stock is also trading at an unreasonable Price to Earnings (P/E) ratio as compared to its peers. Based on the foregoing, we give an “Expensive” recommendation on the stock at the current price of $6.75
IPH Daily Chart (Source: Thomson Reuters)
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