This is the sort of situation where you start to debate whether...

This is the sort of situation where you start to debate whether to take the loss and get out before it gets worse, or if it is going to recover. We have all (well me anyway!) in the past made beginner mistakes of averaging down when for example the same number of shares can be bought as cost 4x a few weeks prior etc etc and so it goes on buying ever cheaper shares, sometimes to zero. Meanwhile the company management keeps on seeing a recovery just around the corner, with plenty of excuses along the way.

To know if it is one that is going to recover you need to see some catalyst, a reason for a turn-around in the business and share price. Is there one in AFL's case? I think maybe there is.

I don't think we should underestimate how much AFL are under new management. Chris McFadden did a good job at Ashley Services (ASH:ASX) and Peter Johns spoke highly of him when he was appointed, maybe too he had a role in his selection. Chris is now not just CFO but COO. He is in a very good position to call the shots now. He can sort out the operation in the law firms that appear to have been allowed to slip while management were focussed on the merger activity. He has kitchen-sinked the balance sheet and in alliance with the new director Peter Johns, who is both an experienced lawyer as well as fund manager, they form an axis that effectively now runs the company. Peter Johns also has spoken highly of Grant Dearlove and I see it as positive that he is retained interfacing on professional matters to the company lawyers and any that may join.

It is not going to change over-night but there is this potential catalyst.

Will this be enough? The market cap is only half the annual sales revenue so it is incredibly cheap. Gross margin on sales is very high so an increase in revenue quickly adds to profit, however as revenue dips this goes into reverse as we know too well. Get the business performing and we are in a good position. The emphasis seems to be on organic growth now and this is right, although an obviously excellent inorganic opportunity, maybe JV, as they achieved in Darwin shouldn't be passed by if it has fast payback. Whilst there is a catalyst there is no doubt there is risk here as a small company that needs to manage its cash carefully. Frankly I would forget share buy backs for now if I was them.

The H1 results are due by the end of the month. We already know the bad news but any update of trading and future prospects may be interesting.

GLA
dropside