I know a bit about the Personal Injury no-win-no-fee matters (also known as *spec* matters), and how law firms take them on and operate (me being from a law firm).
How it works is:
A) Somebody has slipped and fallen, or there's an accident in a shop which leaves people injured.
B) Those people will have no money to pay for lawyers, and Slugs & Bugs take it on spec.
C) Settlement or successful outcome in court against the insurer/individual.
The way that SGH get their legal bill paid isn't mostly from the clients pocket at the end of the settlement, but rather from the defendant or insurer.
The trouble is on spec matters, any figure (let's say $100K WIP) would probably actually be paid for by the insurer for 60-70cents to the dollar. The firm may not see the rest of the money because the client doesn't want to pay.
Methinks that Slugs & Bugs misrepresented (not on purpose) their assets (WIP), and they have recently gone through the backlog of successful and unsuccessful matters and wrote a lot of them off. That may have deteriorated investor confidence.
This is an opportunity for SGH to finally consolidate all of their outstanding WIP, matters, and debt. No-win-no-fee firms typically run on debt to pay their employees and to cover other expenses, OR they turn to litigation funding (as Slugs & Bugs have done - if I recall).
Anyway, that's my 2 cents. You're all more experienced investors. What do you think of the above??
SGH Price at posting:
27.0¢ Sentiment: Buy Disclosure: Held
