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.
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...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.
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.
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.
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?
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?
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.
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.
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.
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.
SGH continuing to make good gains on renewed confidence.
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
Now we just need them to launch a class action against themselves for failing to look after shareholders' best interests.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.
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