SGH - Slater and Gordon

[McLovin]

I must admit though, the story portrayed by the bears is far more interesting and persuasive than the defense put up by the bulls. As you say... time will tell. There is probably little SGH can do to prove the bull case until the cash starts to roll in... around H2 FY16 by their own projection. Until then the share price might move on short term reaction to ASIC or QPP investigations... but a total re-rating is some time away even under the best case scenario.

The bear story is almost always more persuasive, imo. We'll see what happens. With all the reassurances they have now given the market it seems less and less likely that they have dropped the ball in any meaningful way. They are a bunch of compensation lawyers afterall, so they'd know how to cover their own arses.

It would be much easier to have conviction either way if there damn accounts were easier to read. It seems to me like a lot of the bear case revolves around the opaqueness of the accounts and because of that something must be wrong.

 

[skc]

The bear story is almost always more persuasive, imo. We'll see what happens. With all the reassurances they have now given the market it seems less and less likely that they have dropped the ball in any meaningful way. They are a bunch of compensation lawyers afterall, so they'd know how to cover their own arses.

It would be much easier to have conviction either way if there damn accounts were easier to read. It seems to me like a lot of the bear case revolves around the opaqueness of the accounts and because of that something must be wrong.

You'd think SGH won't be making any acquisition anytime soon. So a period with no acquired WIP should help give a clearer picture.

What they could have done, was to pick, say FY13, WIP on the balance sheet and explain how cashflow came in over the subsequent periods. That will illustrate the true WIP-to-cash cycle. Now whether the true picture fits their story or not... that another matter.

 

[Ves]

The bear story is almost always more persuasive, imo.

Was thinking about this recently, especially after reading something related to this type of "bear story" (ie. hedge-fund driven).

Something I came across, was the "bear raids" in the early 2000s on Fairfax Financial (a Canadian insurance company listed on the NYSE) by well known massive hedge funds like S.A.C Capital. Their bear theories mainly revolved around the fact that FF was using inter-subsidiary re-insurance to hide a $5B insurance provision deficiency that will wipe out the company's equity. Another massive insurer, in the US, named AIG had provisioning issues in the years earlier. So the theory was plausible.

These big hedge funds were worshipped by brokers and financial analysts alike, who were often thrown a bone by guys like Steven Cohen, were encouraged (that's a euphemism) to write broker / sell-side reports after the shorts were loaded up. Turned out that none of this was true. FF actually tried to sue some of these hedge funds years later, but failed, however a lot of the email discourse they uncovered (which heavily points towards manipulation of stock prices, lies etc) is now on the public record.

The stock markets are an interesting place, that's for sure.

 

[lemongrass1]

The bear story is almost always more persuasive, imo. We'll see what happens. With all the reassurances they have now given the market it seems less and less likely that they have dropped the ball in any meaningful way. They are a bunch of compensation lawyers afterall, so they'd know how to cover their own arses.

It would be much easier to have conviction either way if there damn accounts were easier to read. It seems to me like a lot of the bear case revolves around the opaqueness of the accounts and because of that something must be wrong.

Yes, SGH keeps saying they have no liability for things that happened at Quindell before they purchased it, and I have not seen any reports dispute that -- whatever you think about SGH's accounting, they should be in a pretty great position to understand their potential liability.

The general opinion about SGH seems to have improved (here and from the commentators on Sky News Business), perhaps over time once the immediate fear response fades, the facts start to be looked at more rationally.

The share price still hasn't started to make a proper recovery yet, as someone else said it might take until the FY16 results are released to fully convince people of the merit of the Quindell purchase.

 

[lemongrass1]

Was thinking about this recently, especially after reading something related to this type of "bear story" (ie. hedge-fund driven).

Something I came across, was the "bear raids" in the early 2000s on Fairfax Financial (a Canadian insurance company listed on the NYSE) by well known massive hedge funds like S.A.C Capital. Their bear theories mainly revolved around the fact that FF was using inter-subsidiary re-insurance to hide a $5B insurance provision deficiency that will wipe out the company's equity. Another massive insurer, in the US, named AIG had provisioning issues in the years earlier. So the theory was plausible.

These big hedge funds were worshipped by brokers and financial analysts alike, who were often thrown a bone by guys like Steven Cohen, were encouraged (that's a euphemism) to write broker / sell-side reports after the shorts were loaded up. Turned out that none of this was true. FF actually tried to sue some of these hedge funds years later, but failed, however a lot of the email discourse they uncovered (which heavily points towards manipulation of stock prices, lies etc) is now on the public record.

The stock markets are an interesting place, that's for sure.

Have you seen this article? http://www.afr.com/street-talk/slat...of-vgi-partners-long-position-20150826-gj83if

I'm not sure what to make of it.

 

[aussietom]

Saw this on another forum:

This research was posted yesterday, 23 Sept, and provides a pretty detailed analysis.

http://www.edisoninvestmentresearch.com/research/report/slater-gordon11

 

[galumay]

Saw this on another forum:

This research was posted yesterday, 23 Sept, and provides a pretty detailed analysis.

http://www.edisoninvestmentresearch.com/research/report/slater-gordon11

The thing for me with SGH is that I cant unravel their accounts to my satisfaction. I have spent some time with their unaudited report for the FY15 and frankly its a mess. Its not easy to work out what the real cash flow is in the business and therefore get to a valution range for it. Change in working capital is a worry - without any breakdown of what has caused it. I am ver y wary of the value assgined to WIP, i think thats ripe for impairment.

I dont think its cheap currently, too much uncertainty about its real financial position.

 

[Ann]

SGH has turned out to be a very disappointing share. The five year monthly chart looks more like a pump and dump sooner than a real company. It is close to a long term support/resistance line of $2.40. If it fails this level it may just turn into a plaything for the boys in shorts. Perhaps a new board of directors and management may get it moving again back in the right direction again.

 

[galumay]

Perhaps a new board of directors and management may get it moving again back in the right direction again.

I doubt that is an issue, its the overhang of uncertainty about the ASIC case and the lack of clarity in the AR that made it very hard to work out a valuation for the company.

I suspect that the price will make a step recovery when & if SGH get the all clear from ASIC, then it will probably be a wait for the ½ yearly and see if there is some more clarity on the financials and therefore the value of the company.

I continue to hold, but didnt entertain averaging down due to the lack of clarity and uncertainty about the viability of the acquisition.

I suspect I am going to regret that decision in the next 12 months! But in the end there were lower risk homes for the capital - without the same upside of course!

 

[So_Cynical]

I doubt that is an issue.

The board completely screwed the rank and file shareholders..totally screwed.

 

[craft]

SGH has turned out to be a very disappointing share. The five year monthly chart looks more like a pump and dump sooner than a real company. It is close to a long term support/resistance line of $2.40. If it fails this level it may just turn into a plaything for the boys in shorts. Perhaps a new board of directors and management may get it moving again back in the right direction again.

Why would that support resistance line still be of significance? 75-80% of all the volume ever traded has occurred since that line was last touched. The volume psychologically anchored to that level and still holding would have to be pretty small I would guess.

 

[galumay]

The board completely screwed the rank and file shareholders..totally screwed.

I think the jury is out on that one, lets see what the full years results post aquisition bring.

Even if it turns out to be so, there is no guarantee that changing the board & management will in fact make any difference to the share price - which was Ann's original suggestion.

 

[Ann]

Why would that support resistance line still be of significance? 75-80% of all the volume ever traded has occurred since that line was last touched. The volume psychologically anchored to that level and still holding would have to be pretty small I would guess.

G'day craft, a support/resistance line can be a psychological sell/buy trigger regardless of the volume. It doesn't only take volume to drop a price, it is also the sentiment. SGH originally floated for a $1 so if it drops below the $2.40 line then the original IPO investors may cut and run before their doubled money dissipates. That could prove unattractive for the share price.

If you are asking why the $2.40 level should stick and possibly be a floor without the support of much volume.....sometimes it seems good news comes out just at a critical level and bounces a stock back up again off support. Its a fine spectator sport I find!

 

[craft]

G'day craft, a support/resistance line can be a psychological sell/buy trigger regardless of the volume. It doesn't only take volume to drop a price, it is also the sentiment. SGH originally floated for a $1 so if it drops below the $2.40 line then the original IPO investors may cut and run before their doubled money dissipates. That could prove unattractive for the share price.

If you are asking why the $2.40 level should stick and possibly be a floor without the support of much volume.....sometimes it seems good news comes out just at a critical level and bounces a stock back up again off support. Its a fine spectator sport I find!

I don't know - it seems like a stretch to me. If the psychology of the current participants don't lend weight to the support/resistance or any pattern for that matter then what validity can they possibly have?

 

[Ann]

I don't know - it seems like a stretch to me. If the psychology of the current participants don't lend weight to the support/resistance or any pattern for that matter then what validity can they possibly have?

Well charting is all in the eye of the beholder and many would say there is no validity in charts. I can appreciate that viewpoint and it is why I am never 100% adamant about the outcome of a chart. It is more that certain patterns and lines on regular occasions react in certain ways but not always. It is one tool in the investment toolbox and nothing more. I have made some amazing calls of future outcomes from charts and at other times it has been a total wipe out!

A chart is a tool which at one glance will tell you the current state of a company, a quick and easy tool to begin with.

 

[craft]

A chart is a tool which at one glance will tell you the current state of a company, a quick and easy tool to begin with.

100% with you on that one - we compute information so much better visually then we do in a tabular form. Try playing noughts and crosses in your head - even keeping track of nine squares without visual reference is difficult.


On the other point with such a historical level that you are referring to in volume terms I was just curious as to whether you thought current participant psychology drives the price action and therefor the chart or if you tend to think what people read into the chart can drive the price action in a self fulfilling reflexive sort of way.

Cheers

 

[Huskar]

What I don't like is the Revenue vs Receivables change. Even though revenue increasing at 43% receivables increasing at 203% (and >than total revenue) - that is not sustainable. Sure it is significantly out of whack because of acquisitions etc but law game difficult business in this regard.
Higher end law firms take ~6 months to recover their fees (although average is 3 months for accounts receivable - OZ and US markets here, for example) and ambulance chasers like SGH can be more. You have the flipside of better leverage (in the sense of more fee earners per partner) at ambo chasers but this has its own risk - supervision risk, quality of product etc.
Where a law firm is a good business is that little overhead apart from employee cost (~40% of revs - although compare with 60% in US) and can have strong recurring revenues.
My ultimate thoughts (for what its worth) are that - like investment banks - these are run for the pockets of the equity partners rather than the shareholders (no matter that the structure has supposedly changed).

 

[So_Cynical]

The board completely screwed the rank and file shareholders..totally screwed.

I think the jury is out on that one.

No the verdict is in, i got screwed - under the institutional entitlement offer, the instos and sophisticated investors including some board members and senior management got paid $1.13 per share for their entitlements, the retail holders (me) got 1c per share.

Now tell me i didn't get screwed?.

http://www.asx.com.au/asxpdf/20150402/pdf/42xpdtmvkjk372.pdf

http://www.asx.com.au/asxpdf/20150424/pdf/42y2ppqdvkz47y.pdf

 

[Ann]

On the other point with such a historical level that you are referring to in volume terms I was just curious as to whether you thought current participant psychology drives the price action and therefor the chart or if you tend to think what people read into the chart can drive the price action in a self fulfilling reflexive sort of way.

Cheers

Interesting question craft, probably a bit of both depending on the stock. May well be the reason some patterns succeed and some patterns fail. I am betting there is a lot of money in our Western Markets that doesn't speak English but can read a chart and will react to a pattern. I have for many years asked IC charts to give us horizontal volumes but it has never happened, mores the pity because at a glance it would show you were the major volume pressure is likely to cut in. The best they give you is a thing called EquiVolume which is a chart with thinner and thicker blocks which denote volume. It is OK but not as good as a horizontal volume overlay on a standard chart.

 

[galumay]

Now tell me i didn't get screwed?.

You didnt get screwed. Should have taken up the offer like i did!