Shine Corporate Ltd

SHJ details
 
Rise in H1FY17 net profit after tax: During H1FY17, Shine Corporate Ltd (ASX: SHJ) reported a revenue and EBITDA growth of 15.5%, 385.7% at $74m, $10.2m respectively, led by solid billings growth in Shine Lawyers, Bradley Bayly and Best Wilson Buckley Family Law. Despite continuous competitive landscape, new emerging practices are gaining market traction and marketing campaigns have stimulated organic growth during the same period. The company’s NPAT grew by 194.3% year on year (yoy) to $3.9m. However, the H1FY17 results have been impacted by the underperformance in the Energy & Resources practice and led to lower than expected revenue and an impairment charge of $5.0 million against the goodwill. Further, overhead costs increased due to administration salaries, spend on digital marketing and the full year impact of subsidiaries acquired in FY17. Currently, the group is focusing on maximizing staff utilization, cost control measures to improve efficiency, and guided for FY17 EBITDA to be at the lower end of $36 -$40m.
 

H1FY17 Performance (Source: Company Reports)
 
In H1FY17, borrowings increased by $18.4m to $47.4m due to the funding of vendor deferred and contingent consideration, and the acquisitions of claims, while cash on hand was at $11.9m.GOCF (Gross Operating Cash Flows) grew by 44.4% yoy to $5.2m, driven by receipt of DePuyclass action fees and aged debtor’s collection, however, the growth in GOCF was offset by an increase in class action disbursements.
 
Litigation funding by IMF Bentham against the Commonwealth of Australia: Recently, SHJ announced that the proposed class action against the Commonwealth of Australia (Department of Defense) in relation to contamination at the Oakey Army Aviation Centre will be funded by litigation funder IMF Bentham Limited (IMF).The proposed action will be conducted on behalf of property and business owners affected by contamination alleged to have arisen from the use of aqueous film forming foam at the aviation center.
 
Recommendation: SHJ’s stock has declined by 59.8% over the past six months as on May 04, 2017, on account of softness creeping in financial position.We give a “Hold” recommendation on the stock at the current price of $ 0.51

Slater & Gordon Ltd

SGH details
New Working Capital Facility: Slater & Gordon Ltd (ASX: SGH) updated the market stating that an agreement has been executed and completed with its New Senior Lenders in relation to the provision of a new $40m working capital facility. This facility has a three-year term and is expected to provide a working capital headroom while the group continues to execute its plan to restore its financial performance. SGH further stated that recapitalisation discussions are continuing and the market will be updated in due course. In the month of March 2017, the lenders of SGH had agreed to make further amendments to the company’s syndicated facility Agreement, which included capitalization of $32m of interest payments due for payment on 28 June 2017 and consent for the company to incur new super senior debt. In H1FY17, SGH reported a loss of $425.1m largely impacted by a $350.3m impairment charge against the carrying value of UK intangible assets; and underperformance across the UK and Australian operations in relation to resolution of personal injuries claims. However, the company managed to reduce operating costs significantly across all business segments including labor, advertising and marketing due to the implementation of a performance improvement programme. Other material items impacting results included $13.7m of non-recurring restructuring costs, redundancy and property rationalization costs in both Australia and the UK. The U.K business continued to underperform due to the disruption caused by the transformation activity, staff turnover and the impact of negative sentiment on the business. Despite, making some progress for past 12 months in the UK, the turnaround and full impact of the performance improvement initiatives taken were expected to take more time. Though, the net operating cash flow continued to improve in H1FY17, there remained an outflow of $11.4m against $20.9m outflow in H1FY16. Without, non-recurring restructuring costs, gross operating cash flow stood at a positive $7.1m against an outflow of $58.1m in H1FY16. On the other hand, ASIC had notified SGH about conclusion of the investigation which was focused on the accuracy of financial records and accounts of the company for the period between 1 December 2014 and 29 September 2015; and stated that there was no breach of law and ASIC will not take any enforcement action.

Recommendation: SGH’s stock has declined by 74.3% over the past six months as on May 04, 2017, on account of weakening financial health.We give a “Hold” recommendation on the stock at the current price of $ 0.09

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