SGH - Slater and Gordon

[skyQuake]

I will say it again your chart is your insurance policy.

Not always... There are the rare occurrences when there is little to no warning.


Stop limit wouldnt have helped here. Or if your broker's stop market had internal circuitbreakers in place


New highs followed by maybe never seeing ur money again...

Position sizing is pretty paramount too.

I covered my shorts too early. If I knew about their troubles I wouldn't have covered my shorts. I suffered significant lost profit. I think there is definitely a case for a class action by the shorters.

Look its an evil short seller! Target him in the class action too!

What's more, he wouldnt even return his borrow :O

 

[skc]

View attachment 65398
New highs followed by maybe never seeing ur money again...

Have to admit I have never seen this before.

What's more, he wouldnt even return his borrow :O

I don't have any borrow anymore.

They are charging an arm and a leg and two first born children for the borrow. Yes... that's right, two first-born's.

A colleague of mine is requesting some borrow after the recent birth of his twins but they said only one of them could be a true first born.

 

[Triathlete]

Not always... There are the rare occurrences when there is little to no warning.

View attachment 65397
Stop limit wouldnt have helped here. Or if your broker's stop market had internal circuitbreakers in place

I make it an exit at $6.90 on the open 9/4/2015 using Gann swing on the weekly chart.

 

[skc]

Investigative accountants appointed by the banks. What a great start to the new year by McGrathNicol (first DSH then the SGH gig). SGH made an announcement after market regarding the news. Interestingly the wording is different between Grech's comments in the AFR and those in the announcement.

The AFR news quoted

This is a part of the process and you can be assured that we remain strong and will continue to deliver excellent outcomes for our clients, just as we have done for the past 80 years.

http://www.afr.com/business/legal/s...-in-investigative-accountants-20160107-gm1d0d

While the announcement said

Slater and Gordon will continue to deliver excellent outcomes for its clients, as it has done for the past 80 years.

What did they mean by "strong"? Financially strong? Or strong willed in their client work? It seems odd that they chose to mention that they will deliver for the client... when they should be working to deliver outcome for the shareholders. I guess with a potential class action, they are really being careful with their words.

SGH is laden with debt. All $700m against annual cashflow of <$50m. I don't think SGH will exist in it's current form by the end of FY16 (if not earlier).

Looks like earlier... one doesn't just appoint McGrathNicol for fun. The question now is whether the banks can do better by appointing receivers, or let SGH trade on a bit longer and hopefully generate some cash. Putting SGH under will most likely further delay recovery of potential cash (supposedly) trapped in the WIP.

My guess is there will be the promised Jan update in the next week or two, coupled with a trading halt which turns into a suspension. The banks will ask for a capital raising or a restructure of sorts, which will take some time to arrange (if at all possible). Existing holders will face serious dilution, but have no choice but to vote in favour of the deal. Unless SGH is to announce that Dec was a cracker month for cashflow... this seems unlikely, however, on seasonal factors alone. The timing of the appointment also coincides with the possibility that Dec numbers were provided to the banks which warranted further action.

 

[Ves]

I guess the SGH board are still technically meeting their disclosure requirements in a legal sense with that after-market announcement (well, I guess we don't find out unless someone tests it in court ). But, as a shareholder, you'd know very little about the real situation playing out behind the scenes unless you were really widely read and spending a fair bit of time joining all the pieces together.

It's too hard for someone who is pretty risk-tolerant like myself (ie. what would I miss?), but it's a good exercise to play along with in real time. I've learnt heaps.

AFR (and others) probably do write in a way that sells papers at times (duh), but credit to them for actually investigating these situations and at least bringing them to light well beyond what we are given in the announcements by companies like SGH that seem to be par for the course on the ASX.

I can't believe how quickly some of these situations (VET, DSH, FGE, SGH) have been playing out in recent years. Mind-boggling. From profitable accounts & current profitable guidance to bust in mere months. Yep, the business models and financial structures were all very exposed to torpedoes, but arguably none of this was priced into the market for long periods of time in every one of these cases.

 

[skc]

I can't believe how quickly some of these situations (VET, DSH, FGE, SGH) have been playing out in recent years. Mind-boggling. From profitable accounts & current profitable guidance to bust in mere months. Yep, the business models and financial structures were all very exposed to torpedoes, but arguably none of this was priced into the market for long periods of time in every one of these cases.

Market is very short term focused despite the amount of seemingly intelligent and educated people who cover them. The usual analyst coverage 5 years out are not forecasts or even projections... they are mostly extrapolations. The better ones will use a bit of macro/micro factors to adjust those extrapolations. But by and large, the target price of a stock lags the actual market price on the way up and also on the way down.

Interesting to note that the 4 companies you mentioned met their demise very differently.

VET was scamming the system with the VET-FEE scheme and got caught out. It wasn't a left field regulatory change or something. Indeed it was their (and other dodgy educator's) action that prompted regulatory changes. They then proceed to lie to the market about the situations. So VET deserves everything that happened. Perhaps the market should discount VET a bit due to the regulatory exposure... but not for it being a dodgy operator.

FGE was in an industry that is prone to bombshells... so bad luck might hit once in a while. They got the hit at a very bad time and evidently they didn't manage it well enough. It wasn't trading at a massive multiple (it was slightly below sector from memory) so perhaps the market has already discounted it properly.

DSH had poor foundations coming out of PE and poor management thereafter. But I am also surprised by the speed of it's demise. Then again, a lot of retail businesses die that way. I don't think the market need to price every retail business as an impending timebomb... most businesses usually can withstand and recover from a bad period or two.

SGH is totally self inflicted... It is (before all this) a business that can be heavily affected by regulatory changes, so the market should probably apply some degree of "bombshell discount" (think MMS before and after the novated lease drama). But it was going along nicely (perhaps with problems not yet revealed), and the QPP acquisition attracted the world's gaze and exposed it like the emperor's nakedness.

An investor has plenty of time to assess the deal and exit their position with minimal damage. I remember that, on first glance I was quite positive on the deal announced (see post here https://www.aussiestockforums.com/forums/showthread.php?t=6931&page=2&p=865310&viewfull=1#post865310) but later that night I already had my doubts. The share price was >$7 at the time, it took me <2 hours and I didn't even hold a position at the time. So as much as the media reports the rapid demise of SGH's share price... it's not like anyone was trapped in a sudden trading halt.

Beyond the acquisition, the market overall was ignorant of the WIP/cashflow/reconcilation issues within SGH. However, the numbers were there for anyone able and willing to do the work. I guess the shorter's work ethics were rewarded.

 

[skc]

SGH released the numbers today and came out of suspension.

The numbers were pretty bad and bleeding cash badly in the UK... an outcome that anyone who spent 30 minutes reading up on QPP could have envisaged. There is no guidance on H2 - I guess there is not much point of giving guidance given that there need to be wholesale changes to the business if it was to survive the bank's imposed deadline for an updated operational (debt repayment) plan.

Indeed I was surprised that the company is allowed to trade in this state. The numbers are released in time (frankly that's quite an achievement for this company) but with financier's support on a very thin edge, one could argue that the stock should be suspended until such time that any plan is approved by the lenders. On the bright side it allows holders to salvage something.

 

[shouldaindex]

Anyone know if their cases would continue through another firm (NCM class action for example) if they went into administration? Or would it have to start again.

 

[Knobby22]

SGH released the numbers today and came out of suspension.

The numbers were pretty bad and bleeding cash badly in the UK... an outcome that anyone who spent 30 minutes reading up on QPP could have envisaged. There is no guidance on H2 - I guess there is not much point of giving guidance given that there need to be wholesale changes to the business if it was to survive the bank's imposed deadline for an updated operational (debt repayment) plan.

Indeed I was surprised that the company is allowed to trade in this state. The numbers are released in time (frankly that's quite an achievement for this company) but with financier's support on a very thin edge, one could argue that the stock should be suspended until such time that any plan is approved by the lenders. On the bright side it allows holders to salvage something.

I can't see the company continuing. Maybe they will close it down and sell the Slater and Gordon business to an entrepreneurial organisation, maybe Anchorage Capital?

 

[McLovin]

D-Day approaching, and it looks like some are trying to jump ship already. They supposedly had until the end of this month. Clock's ticking.

Slater & Gordon's chief in-house lawyer has resigned from the embattled listed legal firm after less than two months in the role.
Moana Weir who commenced her position as general counsel and company secretary on January 29, resigned on Thursday with immediate effect, the company said in a statement to the exchange late on Friday.

[and]...


Slater & Gordon is believed to be one of a handful of soured loan exposures that have resulted in a rise in bad and doubtful debt charges at the big banks. On Thursday, Westpac told investors on a conference call that five large exposures could represent "swing factors" to its bad debt charge for the financial year, as it may be forced to increase provisions.

Read more: http://www.smh.com.au/business/slat...to-new-low-20160328-gns3sw.html#ixzz44FBTyeDd

 

[skc]

D-Day approaching, and it looks like some are trying to jump ship already. They supposedly had until the end of this month. Clock's ticking.

Read more: http://www.smh.com.au/business/slat...to-new-low-20160328-gns3sw.html#ixzz44FBTyeDd

She probably has regrets the moment she signed up...

FWIW, I think SGH will most likely be kept on life support for some time. Without hard assets and with regulatory risks and class action risks, it feels like the banks are just as stuck as the shareholders.

The banks will retain control while they try to sell the debt. If they could force a capital raising (it'd be a struggle to find an underwriter) to repay some debt then even better. I don't see the self-imposed deadline by the banks actually helps in maximising recovery.

Unless of course that the recent cashflow numbers are so bad that debt is still being drawndown. That's the line in the sand imho.

There are quite a few zombies on the ASX that have lingered on a lot longer than SGH... names like MCS, ARI, AGO... so anything is possible. Staying alive, however, doesn't necessarily mean better outcome for shareholders.

 

[McLovin]

She probably has regrets the moment she signed up...

FWIW, I think SGH will most likely be kept on life support for some time. Without hard assets and with regulatory risks and class action risks, it feels like the banks are just as stuck as the shareholders.

The banks will retain control while they try to sell the debt. If they could force a capital raising (it'd be a struggle to find an underwriter) to repay some debt then even better. I don't see the self-imposed deadline by the banks actually helps in maximising recovery.

Unless of course that the recent cashflow numbers are so bad that debt is still being drawndown. That's the line in the sand imho.

There are quite a few zombies on the ASX that have lingered on a lot longer than SGH... names like MCS, ARI, AGO... so anything is possible. Staying alive, however, doesn't necessarily mean better outcome for shareholders.

I reckon the banks are the equity holders now. What's the Australian operation worth now that the acquisition business model has been shut down? A few hundred million at most? God knows what the mess in the UK is worth. Net debt is ~$750m, which is about $400m-$500m more than the Australian business.

I agree with you that they will have to keep it as a going concern if they're going to get anything back, and to be fair, if you strip out the awful decision making of management and the bank debt there's a reasonably profitable business underneath all that.

The question then becomes if the listed law model has been proved a failure who will buy it? It doesn't seem like the type of thing PE goes for (no tangible assets, no IP) which really only leaves a trade sale. Do private law firms have that sort of cash? I guess on the +ve side equity markets don't have a long memory.

 

[VSntchr]

And SGH lives on, with the banks offering some agreeable terms out to 2018.
Market likes it, probably a high % of the rise is short covering given that ~7.5% was short interest before today.
34m vol in the morning session.

 

[skyQuake]

And SGH lives on, with the banks offering some agreeable terms out to 2018.
Market likes it, probably a high % of the rise is short covering given that ~7.5% was short interest before today.
34m vol in the morning session.

The gents across the pond are absolutely foaming at the mouth today!

Its only 2 days of volume to cover so it ain't so bad for the shorts. Besides, that ~20m short interest has remained pretty steady for the past 6m on price spikes so its probably a strong hand.

If you want to see high short interest check out the banks - most of them at 10+ days to cover!

 

[kid hustlr]

Do you think 'days to cover' is a stronger indicator than % of short interest?

 

[skc]

The gents across the pond are absolutely foaming at the mouth today!

Not sure what that means?!

Its only 2 days of volume to cover so it ain't so bad for the shorts. Besides, that ~20m short interest has remained pretty steady for the past 6m on price spikes so its probably a strong hand.

If you want to see high short interest check out the banks - most of them at 10+ days to cover!

Great news that shareholders are still alive... but I can't help but notice that there is a lack of details in EVERYTHING - debt convenants, restructuring plans, operating cashflow updates etc etc. If the news is good you can bet your house that they'd mention it.

Now let's see if the banks offload their debt over the next few months. I don't doubt there'd be some private equity players willing to punt on a slice or two.

 

[McLovin]

Call me skeptical...



It seems more like the banking syndicate has restructured the debt so it can be sold. I just can't see how they can service this debt unless lenders take a haircut. There's lots of WIP, but who knows how much more money needs to be poured into those cases to realise the invested WIP? With no operational update at all it's pretty clear who's driving the ship and it's not Captain Grech.

 

[skyQuake]

Not sure what that means?!

460 SGH posts on hotcopper today so far. Every single one factual, well thought out, and informative, oh and certainly not smug

Great trading stock though

 

[shouldaindex]

Getting randomly timed positive reinforcement just prolongs a gambling addiction.

 

[skc]

460 SGH posts on hotcopper today so far. Every single one factual, well thought out, and informative, oh and certainly not smug

Great trading stock though

I see. I thought you said "across the pond" as in someone from UK...

I am too scared to go and check out the posts there today. I really don't have a spare 6 hours.

Call me skeptical...

It seems more like the banking syndicate has restructured the debt so it can be sold. I just can't see how they can service this debt unless lenders take a haircut. There's lots of WIP, but who knows how much more money needs to be poured into those cases to realise the invested WIP? With no operational update at all it's pretty clear who's driving the ship and it's not Captain Grech.

The funny thing about this stock is that there is no insto holders anymore... .plus there is no borrow anymore. So there's a good chance that it might go higher yet.

Is the bank allowed to receive more regular operational updates (while the market remains unguided) while attempting to sell SGH's debt? Is there such thing as insider trading for debt? Or is it all OTC so caveat emptor?