Maybe you should think Golden geese. I am a bit stupid but it does seem obvious that $300M EBIT was sometimes better than $200m . The jump to $300M + ( interestingly laid out in detaill by Edison) seems not improbable ( NIHL and supernormal margins which will accrue from the 15 % case reduction throughput on WIP w/o to zero) would be a one off jump if they kill the golden geese.
Normally when there is temporary adjustment/difficulty , the city wants overkill to ensure a once and for all fix.
This absolutely wont do here and the entire business valuation is obscured by what in effect is a bridging loan on NIHL and the obvious normal shrink and shed of the elements with lowest ROCE. The banks will have known every part of the plan . They will know the next 14 months play out generating cash and that more than 15% case shrinkage wouldnt be clever . Killing geese would harm their interests.
Killing geese would also prevent the bit that all stakeholders ( except the value strippers) want. That is the platform to attack more profitable segments of the UK legal market after manageing out of NIHL focus.
All stakeholders know there is an $200M EBIT built in to the enlarged group and that with the 25% reduction in leverage over the next 14 months , that the SP is likely to reflect underlying value eventually. In fact short term confirmation that its on plan and working could have a remarkable effect on the SP.
If it isnt all working to plan I know how I would try to ensure a short term fix. Not huge Convertible to postpone dilution and nibble at the high leverage. Then it would be back on plan. Maybe even a few warrants as a bonus to bankers. Stakeholders know there is a MATERIAL DEBT REDUCTION IN THE PLAN to FEB 17.
Now I am stupid but bankers are not. Nor is the value stripping industry. They have already done the stripping.
Even they would like a recovery (gives them another shot down the line).
My expectation is that by Jue 17 leverage is below $500M and half witted as I am, $200M EBIT can support that with no equivocation . If its not below $500M then convertibles and warrants time then to get it below $500M . Then SGH front row can get on the front foot and dig out the shrink low ROCE bits and attack lucrative segments of the legal market. Stakeholders including banks and value strippers must want that.
As and when we get stark unembellished truth and clarity from the company - Gold.
Deid Geese help nobody except SGH competition in the market place.
MEL
PS and you know what - stupid as I am - I think the new SSAP gets it wrong by overprudence and somebody should discuss it with the OZ tax raising authorities and compare notes with legislators in the USA.
If a public listed company wants to postpone a tax bill - they can do it by off balance sheet leasing subsidiary.
Denying the ability of a Public Listed Company to raise finance on an asset with has clear value ( WIP not at fee stage) is frankly ludicrous. Prudence is good .......way over the top PRUDENCE is stupid.
.
SGH Price at posting:
27.5¢ Sentiment: Hold Disclosure: Held
