I would think it will be more like a bear trip. The share price started to dip below 0.6 when we heard about the proposal of uk whiplash reform. Even after mgn and fti are assigned by lender, the share price is steadily supported as it has already priced for breeching debt convenant. In fact, if westpac chose to put them on watchlist means that they will continue to monitor on sgh and wont pull the plug as long as sgh is still profitable.
To me, the debt carried by sgh is a concern but not an issue as it didnt occur overnight. We all know about this debt during sgs acquasition.
I would say the market is worried about performance of sgs uk and sgh uk. If they are healthy, the debt itself is not a problem at all. Just image, once proven that the sgh as a whole is profitable plus sgs integration/teething problem is over, with current market cap of below $300m, investing $1b literally own the whole company and the left over money in sgh is more than enough to pay down whole debt. What is the return of this $1b investment?it generates a massive yearly revenue of more than $1b with ebitaw of more than $200m. This hasnt include the escrow yet.
The market valued sgh at current market price because it is not proven that sgs is a cash cow other than management due delligence(quindell account show they lose money) and sgh uk perform below expectation.
In summary, once proven that uk office is capable to generate sustainable income, the share price will fly.
SGH Price at posting:
68.5¢ Sentiment: Buy Disclosure: Held
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