Spent today catching up on the events leading to SGH sp plunge. It seemed like a good opportunity to buy a blue chip at a cheap price. Always fun. MD Grech's response seeemed like a succint and assured riposte to the Quindell affair, suggesting to me this had been a market over reaction. However, I can't help but think that the Quindell accounting stuff is a bit if a Red Herring.
For me, and as suggested by the B A Merril Lynch analyst, it is SGH's poor cashflow that is the real problem....and perhaps what the shorters have focussed on. For all SGH's earning growth, the business is hardly throwing off any cash. To get the cash flowing SGH, needs to stop the aquisitions , but if it did so, there goes the growth. Admittedly Quindell was aquired by an equitity rasing in the main but there in lies the conundrum (there is better word that escapes me right now). its such a large purchase and one that is operationally complex in breadth and relative scale....execution may not be that straightforward. Perhaps the aquisition was "transormational" to quote Grech....but perhaps more accurately the aquisition "has to be transformational" in the sense they had to make a huge bolt on via equity to get the cashflowing in the future. This would mean SGH is High Risk because the execution will make or break SGH. If it pans out successfully the cash finally starts rolling in, but if it isnt SGH will be in real trouble.
Just my thoughts. Tomorrow they may change ,but as excited as I was about buying SGH low, right now I'm avoiding. Cheers and here's to an intersting week on the markets.
SGH Price at posting:
$5.04 Sentiment: Sell Disclosure: Not Held
