On fundamentals, this co. Is an avoid imo. As i have posted before cashflow is poor, profit growth has not matched headdline growth and that profit growth is not throwing off cash. As for $7 again, it won't happen. Either more capital raising or cleanout of management, or a breakup. From Motley Fool:
Unsustainable growth
Looking at the company’s financials clearly shows the problem with Slater & Gordon. As Tony Hansen from Eternal Growth Partners has pointed out, “A business that is trying to build scale should show characteristics of operating leverage, or in simple terms, a 10% increase in revenue should lead to a more than 10% increase in profits”. Since 2009, Slater & Gordon have grown revenues at a compound annual rate (CAGR) of 32%. Unfortunately, over the same period, net profit after tax has grown at a lower rate of 29%. That is mainly because the company’s expenses have increased at a faster rate. As an example, advertising and marketing fees have grown at a compound rate of 54%, and administration fees have soared from $8.7 million in 2009 to $36.4 million in 2014. That’s a compound annual rate of 33%.
You would think that a company such as Slater & Gordon would be able to achieve some synergies through its acquisitions particularly in admin costs, even if it was minimal. Clearly, it has not and profit margins have suffered as a result too.
Column 1
Column 2
Column 3
Column 4
Column 5
Column 6
Column 7
Column 8
0
CAGR
2009
2010
2011
2012
2013
2014
1
Fee Revenue
32%
101.0
122.2
178.0
213.8
294.2
411.8
2
Net profit after tax (reported)
29%
17.0
19.8
27.9
25.0
41.5
61.1
3
Earnings per share (reported)
14%
15.8
17.9
19.1
16.2
24.0
30.4
Source: Company reports Negative free cash flows
Taking operating cash flow and subtracting capital expenses such as acquisitions leaves Slater & Gordon with a free cash flow figure of minus $161 million in the past 6 years. In other words, the company has generated zero value for shareholders and has actually gone backwards. To fund the shortfall, Slater & Gordon has also raised an additional $180 million from shareholders.
That is shown in the lower growth in earnings per share (EPS), which has grown at a compound rate of 14% as shares have virtually doubled from 108 million in 2009 to 201 million currently.
Column 1
Column 2
Column 3
Column 4
Column 5
Column 6
Column 7
Column 8
0
Total
2009
2010
2011
2012
2013
2014
1
Operating cash flow
147.2
-0.8
24.7
20.0
16.0
32.7
54.5
2
Free cash flow
-160.9
-11.6
9.2
-47.0
-54.4
13.9
-71.1
Source: Company reports
SGH Price at posting:
$3.39 Sentiment: Sell Disclosure: Not Held
