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54.5¢ slater & gordon limited

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hindmost

1,775 Posts.

169

11/02/16

08:06

Post #: 16991612
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Originally posted by Melrosian ↑

Shatter

I do not actually think we can tell at this stage whether SGH have managed their takeover well.
If it is clearly on course to pay off $700m debt in 5 years it will look different when the debt is halved.
Balance from MF would point to temp nature of cash absorbing HL cases and underlying profits expected. An MF mantra is long term investment pays. So balance would outline the treats and also the possible
future. It would also point at the degree by which the SP is underpriced if there is a long term future at the level the business components have demonstrated in the past.

I am useless at trading and just hope I am correct over the next 3-4 years.

The first six months can only flag up a few things. Me...I am hoping that the SGS performance is clear and that the performance there is consistent with my expectations. If so I can relax knowing that the HL claims business is a temporary phenomenon and after the highly cash negative bit the expectation is then very pleasing.

Management can not manage new strictures from the ACIS or indeed the FCA in advance. Nor can it magic away high gearing in the short term. It can do nothing about the fact that large institutions are going to go near it with investment money until there is clarity about the future. With institutions on the sidelines there is not much management can do to manage PI V's shorters share trading. the Uncertainties hand the market to them on a plate. I expect management can go some way to eliminate the uncertainties on Feb 29 and give guidance. I have no doubt that management is powerless to eliminate all the uncertainties for another year or so.

The investor does know that there is enough profitability to materially lower debt in the next 16 months
and that the SP is priced for failure. The probability is that there will be enough revealed on Feb 29 to
give some assurance that $150M -$200M less debt is likely within 16 months. There is a reasonable chance that general perceptions of reliable future profitability and cash generation make life more difficult fro the shorters. Obviously it will take time. Meanwhile there will be pump and dumps / hammering if no divy / and the brave will buy and tuck away when they can see the assured profitable future.

So Bellweather for me is seeing how SGS is actually performing. With the tax loses created by the seller of QPP PSD . it looks as if PBT = PAT for a long while. It looks as if HL will bring bacon home over next 16 months in cash and profits terms.

In the end I am now just a punter and could be wrong, especially if there is a nasty restructuring . However debt /equity swap ( In a company generating 9 fig profits) would raise profits and reduce debt to pay off..and at this SP a bit of that is not good, but is not the end of the world. It might hasten a return to a normal PE ( Redde Plc is at 19.6)

So as Bergo suggests Heads win Tails win,. As we wait( maybe 18 months) I expect measured management not kneejerk.

Mel

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Mel - re the tax losses and "PBT = PAT" : do we know that SGS will get the tax losses? My understanding of the structure of the deal is that SGH bought the business not the company so the tax losses might have stayed with the company??

SGH Price at posting: 59.0¢ Sentiment: Buy Disclosure: Held
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