RE: Slater and Gordon sp collapse24 Nov 2015 13:47
On SGH price collapse.
When QPP sold PSD it had £45M debt it cleared. Common sense tells us that at least one months invoices could be factored. It it had kept PSD it would have needed aprox £20-25M additional borrowing to Process WIP on the books + HL WIP. Therin lay the problem. I have suggested that to keep on going if banks were saying no, it would have needed £40M finance somehow ( £20m bank £25M expensive hedge fund/mezzanine finance?). By reference to SGH research we can be pretty clear that 9 fig £ profits will be the reward when WIP gets to the invoice stage over the next 2 years.
SGH now has the problem if you can call it that. It needs to finance the Work in Progress until it is net cash generative. It has we assume arranged enough borrowings to cope and common sense suggests that, after buying the portfolio at a knock down price, it will get to the cash generative stage as quickly as it can......and start banking ongoing 9 figure £ profits. Eddison is suggesting 66% EPS hike in the year to June 2016 and a further 23% in 2017.
If I was in charge I would be using provisions to smooth that rise of 89% . 40% EPS rise in the next 2 reporting years with a divy yield of 4.4% might be a good place for PI's. In a couple of years SGH, according to Eddison , can be expected to bank A$ 592M ( £282M) ...giving it , at today's SP a forward PE of 3.
16% of SGH is held by shorters and they can only have their evil way if there is a weakness. Well the weakness is the SGH borrowing ( Hugely bigger than QPP needed to keep going) . If they can bank £282M PBT in 2 years they can no doubt pay down some debt. Lower debt and much higher profits will put a different perspective on the SGH debt.
http://www.edisoninvestmentresearch.com/research/company/slater-gordon
I have no doubt the timing of any improvement in the SGH will be unpredictable and in the control of institutions and stake holders manipulating the SP . Nevertheless with a PE like that and EPS growth predicted, I kam pretty sure I can be patient and wait.
Meanwhile the Turnaround geniuses have turned their back on ongoing 9 fig profits and a good steady business model, and unless they are incapable of cash flow drafting - we dont know why. Well we do £4M was an easy pick. However the duty of directors is to look after widows and orphans like me ( well I am not ...but you know what I mean). Not push us off a cliff.
Mel
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