SGH - Slater and Gordon

[Risk Manager]

2146 GMT [Dow Jones] Shares of compensation lawyers Slater & Gordon (SGH.AU) could rebound soon, as traders will eventually need to close a huge pile of open short positions. The stock, which slumped more than 74% to A$0.69 last week following mounting concern over accounting errors of its U.K. business, was the fifth most shorted company on the Australian Securities Exchange last week, according to most recent regulatory data. "There is a potential for a massive short cover rally," said Matt Felsman, a private wealth adviser at APP Securities in Sydney. He recommends avoiding Slater & Gordon as an investment. However, Felsman says it is an interesting one to watch, as private-equity investors may be eyeing the firm now. (vera.sprothen@wsj.com; Twitter: @verasydney)

(END) Dow Jones Newswires

November 29, 2015 16:46 ET (21:46 GMT)

 

[Gringotts Bank]

SGH will probably set the scene for DSH and a bunch of other stocks which have had heavy falls over the last month.

Meaning that the chart will be mirrored in other stocks because so much attention on it.

Might get up tp the line at the very most, but I doubt it. 1.30$

 

[Ves]

Since there's a lot of WiP on the balance sheet for UK cases, I wonder if any of it is at risk, if for some reason these aren't completed before the proposed legislative changes are enacted? Would these be "grandfathered" and exempt from any changes if they have reached a certain level of progress?

 

[qldfrog]

out at 93.5c all good...

 

[Risk Manager]

SGH will probably set the scene for DSH and a bunch of other stocks which have had heavy falls over the last month.

Meaning that the chart will be mirrored in other stocks because so much attention on it.

Might get up tp the line at the very most, but I doubt it. 1.30$

View attachment 65161

Please, remember me that once I sell over $3

 

[McLovin]

Since there's a lot of WiP on the balance sheet for UK cases, I wonder if any of it is at risk, if for some reason these aren't completed before the proposed legislative changes are enacted? Would these be "grandfathered" and exempt from any changes if they have reached a certain level of progress?

I would take a semi-educated guess that cases that have already been filed will be completed. Otherwise the insurers could just sit on their hands from now and drag it out until the legislation makes the claim invalid.

 

[notting]

insurers could just sit on their hands from now and drag it out until the legislation makes the claim invalid.

Which insurance companies are notoriously good at doing!

 

[Stratagist]

If this was a substantial holding for you I would like to know what risk management you had in place.

So what if their is short sellers or others manipulating the share price blah blah.If you had the right strategy to get out it does not matter obviously you did not.

I just took a look at a weekly chart of the stock and anyone who rode the stock price up to $8 had plenty of time to get out before this chaos.

Their was plenty of exits to show that something was not quite right with the company and I do not need to read any balance sheets to see that ,the chart clearly showed it was time to get out at least in the short term and then waited to see what happens and if everything turned out to be ok you could have bought back in.

I for one would certainly not have averaged down, that is just plain suicide in my opinion.
I hope it recovers for you but do not see it at the moment.

Perhaps I should explain my strategy
Am not a long time holder of SGH and trade for profit playing the latest turmoil in the share price over the last week
Have been watching the price decline closely of recent days
Entered the market at .98 and have averaged down to .915
Looking for a price of 1.00 or plus
Will then take profits

Re Quindell share chart http://www.lse.co.uk/ShareChart.asp?sharechart=QPP&share=quindell

 

[shouldaindex]

The most popular forms of gambling are the most likely to lose money - Lotteries, Sports Betting, Casino, Pokies etc...

Just something to realise about human behaviour - that logical thinking can go out the window when people see big variations in numbers / money.

Not saying don't get involved in SGH, but your reasons for it shouldn't include lots of people on the internet thinking they'll get rich.

 

[skc]

He recommends avoiding Slater & Gordon as an investment. However, Felsman says it is an interesting one to watch, as private-equity investors may be eyeing the firm now.

Private equity investors may be eyeing the firm? How can that be wrong?

I am not sure SGH makes a good PE target. It's doesn't have any real hard assets that a PE player often look for. The problems with SGH isn't cyclical or necessarily operational, and it already has enough debt that there isn't much low hanging fruits on the balance sheet. It also poses problem with exits... the IPO route is probably closed for a long time given the recent carnage, while there isn't an obvious acquirer for trade sales both in Australia and the UK.

I would take a semi-educated guess that cases that have already been filed will be completed. Otherwise the insurers could just sit on their hands from now and drag it out until the legislation makes the claim invalid.

There is probably a bull case for SGH. Let's say they meet guidance of $200m operating cashflow this year and next year before any regulatory changes come through. They cancel the dividends, maximise cash, squeeze something out of NIHL, and pay down debt to say $350m. At the same time, they morph the best they can to generate earnings elsewhere... so say they still manage $80-100m in real sustainable earnings. The market gives it 10 x EBITDAW and you get ~$1.50-1.60 in equity value. Definitely within the realms of possibilities but there needs to be some sign of cash coming in before this scenario can even be considered as aspirational. Then again, there's also the chance that the proposed regulatory changes don't come through, or a more water-downed version is passed, or some other loophole emerges.

The update today could have contained so much more information. For example, SGH could have announced what portion of the current revenue / profit relates to cases under the proposed change. Why was that not announced? Do they not know? Or they know but don't want to tell investors? Or they know but don't think investor need to know? None of these possibilities are particularly comforting.

If I was management, given where the share price is and how trust is severely strained, I would have offered a lot more transparency - unless of course what lies underneath is likely to introduce even more panic.

 

[Triathlete]

Perhaps I should explain my strategy
Am not a long time holder of SGH and trade for profit playing the latest turmoil in the share price over the last weekHave been watching the price decline closely of recent days
Entered the market at .98 and have averaged down to .915
Looking for a price of 1.00 or plus
Will then take profits

My previous comments was based on thinking you may have been in the stock at $8 and watched the share price decline to $0.69

Good luck with your strategy...sounds like high risk trading to me though.

 

[Gringotts Bank]

Break out, break down or break wind?

This is the only possible 3 touch trendline.

 

[McLovin]

There is probably a bull case for SGH. Let's say they meet guidance of $200m operating cashflow this year and next year before any regulatory changes come through. They cancel the dividends, maximise cash, squeeze something out of NIHL, and pay down debt to say $350m. At the same time, they morph the best they can to generate earnings elsewhere... so say they still manage $80-100m in real sustainable earnings. The market gives it 10 x EBITDAW and you get ~$1.50-1.60 in equity value. Definitely within the realms of possibilities but there needs to be some sign of cash coming in before this scenario can even be considered as aspirational. Then again, there's also the chance that the proposed regulatory changes don't come through, or a more water-downed version is passed, or some other loophole emerges.

They may not have that much time...

Proposals to abolish general damages for ‘minor’ soft-tissue injuries will be effective from April 2017. However it is thought that the small claims limit change could be introduced as early as next spring.

http://www.lawgazette.co.uk/news/th...sing-george-osbornes-pi-plans/5052485.article

That really pulls the rug out from under SGH. They'll basically have 3-4 months to sort things out.

They tried to do this a few years ago and it flopped, but I guess back then the Tories were in coalition with the Lib Dems, and now they're not. The reason the change to small claims court can be done quickly is because there is no need to pass legislation.

To be honest, the more you read about the industry the more you appreciate what a total rort it is. It's hard to have any sympathy.

 

[McLovin]

The update today could have contained so much more information. For example, SGH could have announced what portion of the current revenue / profit relates to cases under the proposed change. Why was that not announced? Do they not know? Or they know but don't want to tell investors? Or they know but don't think investor need to know? None of these possibilities are particularly comforting.

If I was management, given where the share price is and how trust is severely strained, I would have offered a lot more transparency - unless of course what lies underneath is likely to introduce even more panic.

I don't think they know the timeline. Why they reaffirmed guidance when there's the possibility that from March they may not have a small claims business anymore I don't know. It seems to me that they don't really know what the effect will be on their business so they've stuck with "it won't affect us yet". Maybe the change will give them a chance to write down some acquired WIP under the guise of change to legislation.

 

[Gringotts Bank]

Meaning that the chart will be mirrored in other stocks because so much attention on it.

SGH up 28%
DSH up 25%

 

[CanOz]

SGH up 28%
DSH up 25%

The inevitable short covering, always good to suck in more punters and give hope the weak longs still holding...

 

[Gringotts Bank]

The inevitable short covering, always good to suck in more punters and give hope the weak longs still holding...

I have left both alone. Have you traded them in either direction?

 

[CanOz]

I have left both alone. Have you traded them in either direction?

No, but i was tempted to check them out for a short covering trade...to many other things on the go!

 

[Gringotts Bank]

SGH up 28%
DSH up 25%

DSH +11%
SGH +13%

Going to keep mirroring. You could pair trade them.

 

[skc]

DSH +11%
SGH +13%

Going to keep mirroring. You could pair trade them.

They've moved 90% down and 100% up from the bottom... and keep monitoring is your plan?

You could pair trade them... but you shouldn't. Except for the fact that they both fell a lot around the same time, there is no premise for a pair trade.