SGH - Slater and Gordon

[McLovin]

If total shares on issue (~350m) stays the same after the re-cap, that equates to $1.40 per share. Obviously those buying today @ 9c won't necessarily be better off... for every 100 shares one buys, it will be "shrunk" back to 5 shares upon the recap's completion. Given the re-cap is yet to complete, and the $1.40 guesstimate is some years away (and just a guesstimate), the current price of 9c is arguably a bit too high.

So 5% of the post recap equity is currently being valued at $31m. That does seem a bit high. It's probably worth way less than 5c at the moment.. A few lawyers I know reckon that reg risk is a real issue and that the government might seriously curtail PI law in the next few years. On the plus side, the new owners have deep pockets which probably removes the concern of SGH lawyers being poached, in smaller markets.

 

[skc]

So 5% of the post recap equity is currently being valued at $31m. That does seem a bit high. It's probably worth way less than 5c at the moment..

I spent a bit more time reading up on the restructure last night, and it's probably a bit worse than what my post suggested due to various other stuff in there like warrants (which brings existing holders to 4%), convertible notes (which removes most upside from any claims out of Watchstone group) and class action threats. So very limited incentive to buy now or after the recap...

A few lawyers I know reckon that reg risk is a real issue and that the government might seriously curtail PI law in the next few years. On the plus side, the new owners have deep pockets which probably removes the concern of SGH lawyers being poached, in smaller markets.

It's been a 2 years since the wheels start coming off... you'd think the good ones would have left already. The worst deal is still those who sold their own practice to SGH for escrowed shares. I wonder if any were market-astute enough to short the stock and lock in the price.

 

[OmegaTrader]

http://www.theaustralian.com.au/bus...l/news-story/fd40d778ba62ff4b1220e07cc765fdd7

http://www.theaustralian.com.au/bus...n/news-story/e36110d15bcd4b47864d9ea86c8c6d73

Rehashing alot of whats here and a couple of questions

But here is my limited thought process.

The hedge fund buys the debt from the big banks for a discount the quoted figure was 146 million.

Prints everybody else out of existence by issuing new shares and controls the company board etc etc.

So effectively the debtors own the company.

Reduce the debt and also get the earnings if any from suing the people they bought the Uk company from.

If I am reading this right the funds have bought the company for around 146 million??

146 mil for assumed 40 mil in cash flow looks like an amazing deal?

Given the current rudimentary assumptions :

So 5% of the post recap equity is currently being valued at $31m. That does seem a bit high. It's probably worth way less than 5c at the moment.. A few lawyers I know reckon that reg risk is a real issue and that the government might seriously curtail PI law in the next few years. On the plus side, the new owners have deep pockets which probably removes the concern of SGH lawyers being poached, in smaller markets.

.09* 350 million gives value of about 31 million

now if you get get in now and get diluted at say 4% that would be a factor of 25.

Valuing it at approx .09* 350*25
=789 million???
or if you want 1 share in the future it will cost you 25 shares .09*25=

$2.25 per share ???

Is that right?

Now if cash flow is 40 million estimated that is PE 19.725 or discount rate of about 5%.

I don't know the value in that. 5% discount for all that risk?

Also there could be the risk of further dilutions or the funds could just run it into the ground after collecting the cash flows.

Finally, there's confirmation of the recap. 95% of the company for the lenders, with ~$40m of debt outstanding. It's a saga of epic proportion... a monumental mistake by management that's kind of beyond comprehension.

http://www.afr.com/street-talk/slater--gordon-poised-to-announce-restructure-sources-20170628-gx0vtt

So how much is SGH-reborn worth? There are lots of moving parts so it's difficult to pin down... but let's say the company can go back to making $40m operating cashflow per year, then a $500m market cap is probably not out of the question given a low debt balance sheet. It won't happen immediately of course due to market sentiment and stock overhang, but a eventual market PE of 12x is not totally unrealistic.

If total shares on issue (~350m) stays the same after the re-cap, that equates to $1.40 per share. Obviously those buying today @ 9c won't necessarily be better off... for every 100 shares one buys, it will be "shrunk" back to 5 shares upon the recap's completion. Given the re-cap is yet to complete, and the $1.40 guesstimate is some years away (and just a guesstimate), the current price of 9c is arguably a bit too high.

So my next question is what is the play for the funds after they now own the company.

Do they resell the company for more than the approx collective 146 million paid or try and get the public back in at a later date.

Or just collect the cash flows from normal business and the major lawsuits then salvage the residual.

At what point if any can the small guy jump on. Any discount can be eroded away easily. But in the future if the company is built up/ re marketed to reissue to new blood.

Say in 2-3 years with some shiny new prospectus brochures??

Using reverse psychology if it is that overvalued why not just short it??



Secondly why would the banks sell the debt for such a deep discount?

They can't be that stupid? Why didn't the banks just muscle in like the hedge funds, print out others or collect the cash flows.

my two cents

 

[skc]

If I am reading this right the funds have bought the company for around 146 million??

146 mil for assumed 40 mil in cash flow looks like an amazing deal?

I don't know the exact transaction figure.. but I think it'd be a bit more than $146m. Total debt was ~$800m and even if all debt were bought at 25% it'd still be $200m.

That $40m cash flow is not a forecast or a given. It's a very optimistic scenario where every planets align and all the hard work pays off and it might earn $40m cash flow in a few years time. It was a number I used to illustrate whether the current share price represents a bargain or not. The actual FY17 free cash flow is probably some large negative number, and it might be so for another period or two. So there could be further capital requirement.

The hedge funds took an investment with plenty of risks.. things may or may not work out. I personally don't think they bought an obvious bargain. And if they end up making hundreds of millions in 5 years time, it will be more because of the hard work they put in to actually increase the company's value, as opposed to buying well below the company's current value.

now if you get get in now and get diluted at say 4% that would be a factor of 25.

Valuing it at approx .09* 350*25
=789 million???
or if you want 1 share in the future it will cost you 25 shares .09*25=

$2.25 per share ???

Is that right?

Now if cash flow is 40 million estimated that is PE 19.725 or discount rate of about 5%.

I don't know the value in that. 5% discount for all that risk?

Correct. It doesn't sound like a good deal to buy now. You can also think of buying now as paying a few times more than what the hedge fund paid.

So my next question is what is the play for the funds after they now own the company.

Do they resell the company for more than the approx collective 146 million paid or try and get the public back in at a later date.

Or just collect the cash flows from normal business and the major lawsuits then salvage the residual.

Probably some combination. There is still debt in the company so cash flow will go towards paying that off. They might separate the UK assets and find a buyer for them (although it'd be hard to see who's game enough). They might even take it all private (with 96% ownership I think they can legally compulsorily acquire) and rejig it before floating it in 4-5 years time (again, hard to see anyone buying into such tainted name but some hedge funds are good at marketing and some investors have short term memory).

At what point if any can the small guy jump on. Any discount can be eroded away easily. But in the future if the company is built up/ re marketed to reissue to new blood.

Too many variables... but my guess is there's no hurry.

Using reverse psychology if it is that overvalued why not just short it??

There has been little or no borrow for years.

Secondly why would the banks sell the debt for such a deep discount?

They can't be that stupid? Why didn't the banks just muscle in like the hedge funds, print out others or collect the cash flows.

Because the company's and its debt's value are different in different hands. The banks are not in the business of owning and turning around a business over a period of 5 years. The debt is arguably worth $0 in the banks' hands. In deed they've already written them off before the debt was sold to the hedge fund.

 

[OmegaTrader]

I don't know the exact transaction figure.. but I think it'd be a bit more than $146m. Total debt was ~$800m and even if all debt were bought at 25% it'd still be $200m.

That $40m cash flow is not a forecast or a given. It's a very optimistic scenario where every planets align and all the hard work pays off and it might earn $40m cash flow in a few years time. It was a number I used to illustrate whether the current share price represents a bargain or not. The actual FY17 free cash flow is probably some large negative number, and it might be so for another period or two. So there could be further capital requirement.

The hedge funds took an investment with plenty of risks.. things may or may not work out. I personally don't think they bought an obvious bargain. And if they end up making hundreds of millions in 5 years time, it will be more because of the hard work they put in to actually increase the company's value, as opposed to buying well below the company's current value.



Correct. It doesn't sound like a good deal to buy now. You can also think of buying now as paying a few times more than what the hedge fund paid.



Probably some combination. There is still debt in the company so cash flow will go towards paying that off. They might separate the UK assets and find a buyer for them (although it'd be hard to see who's game enough). They might even take it all private (with 96% ownership I think they can legally compulsorily acquire) and rejig it before floating it in 4-5 years time (again, hard to see anyone buying into such tainted name but some hedge funds are good at marketing and some investors have short term memory).



Too many variables... but my guess is there's no hurry.



There has been little or no borrow for years.



Because the company's and its debt's value are different in different hands. The banks are not in the business of owning and turning around a business over a period of 5 years. The debt is arguably worth $0 in the banks' hands. In deed they've already written them off before the debt was sold to the hedge fund.

Really in depth response thanks.

Just a crazy idea only that is all I am alluding to.

If hedge fund is getting it a x price. Does that mean there is value for retail Joe at that x price and ride on the back of their efforts. Given a discount would be implied already in that x price.

Ignoring the reported 146 million figure

Ok so just say the debtors bought the whole company for effectively $200 million.
This means that in their mind it is providing value at $200 million.


So if the price drops below what the debtors think it is worth-their price.

305*25*.0262

~ 200 million

305 million shares dilution 25 price would need to be ~ 2.6 cents

Without further dilution and the other risks of being bought out+ the rest of the kitchen sink.


without short or other downward betting derivative, that is all my limited brain has to offer.

cheers

 

[skc]

If hedge fund is getting it a x price. Does that mean there is value for retail Joe at that x price and ride on the back of their efforts. Given a discount would be implied already in that x price.

If the hedge fund is right then you are right. If the hedge fund is wrong then you are wrong. There are examples where a company doesn't turnaround (or even dies again) after a recapitalisation (think BBG or MBN), and I am sure there are examples where a company has flourished after a recapitalisation (just can't think of any off the top of my head).

So just buying at a price <X on it's own right probably isn't a guaranteed winning strategy.

 

[OmegaTrader]

If the hedge fund is right then you are right. If the hedge fund is wrong then you are wrong. There are examples where a company doesn't turnaround (or even dies again) after a recapitalisation (think BBG or MBN), and I am sure there are examples where a company has flourished after a recapitalisation (just can't think of any off the top of my head).

So just buying at a price <X on it's own right probably isn't a guaranteed winning strategy.

I get your point that is why I said idea.

Of course there is alot of risks.

Nothing is a guaranteed strategy. People rely on fund managers,super funds and passive investment. Definitely no guarantee there but still fees.

Even though the funds get a special deal paying down the debt which is basically a transfer to the funds own coffers and also basically all of the proceeds from suing the UK seller.

All I am saying is that if the fund pays x, they think it is worth x. That means something if they have put in all that work and committed funds to the company.

What that means or the importance is up to each person to decide for themselves and take their own responsibility.

 

[PZ99]

Slater and Gordon's long-suffering shareholders will be nearly wiped out in the company's rescue plan and many will be left with parcels of shares so small they cannot be sold on market.

http://www.smh.com.au/business/slat...ay-price-for-rescue-plan-20171030-gzatox.html

A very expensive YES vote

 

[greggles]

Slater and Gordon is up from $1.80 to $2.80 over the last few days. First good news SGH has had for a while.

 

[greggles]

SGH continuing to make good gains on renewed confidence. Surprising turnaround. I thought Slater and Gordon was finished not so long ago.

 

[galumay]

SGH continuing to make good gains on renewed confidence.

If it goes up another 120 times I will be in the black!

 

[MrChow]

Now that's a selective graphic if I've ever seen.

 

[greggles]

Slater and Gordon launch Australia's largest ever class action against Colonial First State and AMP over misconduct stemming from super funds charging exorbitant fees while failing to get the best possible cash interest rate for their clients.

It is expected that up to 18 further class actions could follow against other bank-owned and retail funds.

https://www.news.com.au/finance/bus...s/news-story/e2fa23644d189b742e24cee49b40a84c

https://www.slatergordon.com.au/getyoursuperback/

 

[Ann]

LOL! Thats like my 55 $SGH shares, cost me $626 each adjusted for consolidation, now worth $2.16 per share for a total of $118.80

galumay, what a shocking Consolidation, thank you for telling me. I am so sorry you have also been a victim of robbery under arms of the rich. In a very small way I am going to try to address this situation.

Shareholders who clung on through the catastrophic consequences of the $1.3 billion Quindell acquisition have been all but wiped out anyway, after the restructure involved a 1-for-100 share consolidation, with the implied value of the post consolidation equity around 30 cents to $1.10 per share.

https://www.fool.com.au/2018/08/31/...warns-shareholders-its-shares-are-overvalued/

 

[Ann]

This is a stock I would suggest everyone avoid like the plague, you run an excellent chance of losing all your money through a future stock Consolidation. It is a Rotting Souls stock.

 

[Smurf1976]

Slater and Gordon launch Australia's largest ever class action against Colonial First State and AMP over misconduct stemming from super funds charging exorbitant fees while failing to get the best possible cash interest rate for their clients.

Now we just need them to launch a class action against themselves for failing to look after shareholders' best interests.

They may have a conflict of interest there however.

 

[SirRumpole]

I'm not sure that a law firm that has to serve its clients and shareholders at the same time doesn't have conflicts of interest all the time.

I suppose you could say that about any business, but to me providing a service does not necessarily mean doing it at the highest possible price.

Like the electricity network really.

 

[bigdog]

https://www.theage.com.au/business/...s-he-fights-legal-action-20190117-p50ry4.html

Ex-Slater and Gordon boss defends new role as he fights legal action

The former chief of beleaguered legal giant Slater & Gordon has defended his new role on the company's payroll even as he and other directors face legal claims they omitted details of the company's allegedly botched 2015 accounts during an external audit.

Andrew Grech left Slater & Gordon in 2017 after the group completed its life-saving restructure caused by the disastrous acquisition of the professional services arm of UK group Quindell.

Mr Grech confirmed he became a director and half owner of Equal Access Funding (EAF), a company that has had a long relationship with Slater & Gordon within a few months of stepping down from the Slater & Gordon board in December 2017.

EAF provides litigation funding services to the no-win, no-fee law firm so that cases can be funded ahead of settlements being paid.

In turn, Slater & Gordon guarantees its clients' obligations to repay EAF. EAF's sole client for many years was Slater & Gordon and all current representatives listed on its credit licence are current senior staff at the law firm bar one who is a former lawyer at the firm who left in 2018.

Speaking for the first time since his departure from Slater & Gordon, Mr Grech said he did not see any issue in him becoming a director and half-owner of Equal Access Funding.

"I think if you apply the pub test that these are arrangements that are clearly in the clients' best interests because there is no recourse to the clients," he said.

"So I think it does satisfy the pub test but your readers will be able to draw their own conclusions.

"I was approached by the owners of EAF at the time to take on the role. I think they wanted to access my experience in the plaintiff personal injury area."

Mr Grech said EAF's case book was in run out mode and the group was not funding new cases for Slater & Gordon.

Since leaving the listed group, Mr Grech has been consulting to law firms through his business Juris Advisory, which operates out of his multimillion dollar beach house in the Victorian seaside hamlet Anglesea.

He received total remuneration of $1.5 million during his last year at Slater & Gordon.

A spokeswoman for Slater & Gordon said Slater & Gordon's contractual arrangements with EAF commenced several years ago.

"We understand that Mr Grech's involvement with EAF only commenced well after his departure from Slater & Gordon," she said.

Fresh legal claim
Mr Grech's new business ventures come as he prepares to face a law suit brought by Slater & Gordon's former auditor Pitcher Partners against the law firm and the group's former directors, including ex chairman John Shippen and former chief financial officer Wayne Brown.

Pitcher Partners lodged the legal claim against Slater & Gordon and its former directors after the accounting and advisory group was hit with two class actions relating to the audit it did of Slater & Gordon's 2015 accounts.

Both class action claims include key allegations that auditors from Pitcher Partners signed off on the accounts without properly identifying issues with how the group was accounting for Quindell post-acquisition.

However, the class action claims - one lodged by Maurice Blackburn and another by Johnson Winter Slattery on behalf of different groups of shareholders - are based on different legal arguments and cover different period over which the alleged breaches occurred.

Pitcher Partners has alleged in its response to the class actions, and in making its claim against Slater & Gordon and the directors, that it relied on the information given to it by the law firm about its accounts.

As such it argues that if there were issues in those accounts they were the result of omissions by Slater & Gordon and its officers and not the fault of Pitcher Partners.

Pitcher Partners, which is being represented by SBA Law, declined to comment about the cross claims it has filed.

The law firm representing the directors, Arnold Bloch Leibler has applied to stay the proceedings brought by lawyers for the two groups of shareholders.

ABL is also seeking to have two claims from Pitcher Partners dismissed.

The lawyers for the directors allege the Pitcher Partners cross claim is outside of the terms of Slater & Gordon's court-approved restructure that was completed in 2017.

That restructure sought to ring fence Slater & Gordon from future claims by including a "shareholder claimant scheme of arrangement" which protected the company and its directors from future class action claims, including any legal claim against the company by a third party as a result of a shareholder claimant bringing action against that party.

Under the terms of the restructure deal, the shareholders could be held liable for any findings against the directors that result in a monetary payment.

ABL is not representing Slater & Gordon, which instead is being represented by Minter Ellison as is one of the former directors -- former head of Slater & Gordon UK, Ken Fowlie, who stepped down from the board but remains an executive at the firm.

Slater & Gordon shares were trading at $2.33 at lunchtime on Friday.

The application will be heard on February 13.

6684

 

[Ann]

I do hope no-one here is holding this dreadful company.

Slater and Gordon slips to $10.3m H1 loss

 

[fiftyeight]

The volume of disruption to any and all contracts must be HUGE. All terms and conditions will become negotiable.

Seems like SGH will be busy after the dust settles