Hi accaeric, have been looking into SHJ and have some thoughts....

Hi accaeric, have been looking into SHJ and have some thoughts. Could be entirely wrong - interested to hear your/others' thoughts in response. With respect to primary value vs price indicators (by my calculations, EV/EBITDA at 4.41, P/E at 3.37) the stock certainly does appear cheap, but I'd like to focus on cash for a second...

Based on FY15 report, FCF stood at $10.17m, with current liabilities of $67.83m, of which $19.96m has been categorized as borrowings. Assigning a basic ratio of FCF/current liabilities (not taking into account dividend payouts), we see a result of 0.15 (< 1 suggests potential difficulty in paying off current liabilities). Interesting again to apply FCF against short-term borrowings - result is again less than 1 at 0.51. In 2014, these ratios stood at 0.41 and 2.25 respectively - considerably healthier. FCF has also decreased from 2014 to 2015 from $11.35m to $10.17m (after seeing a considerable spike in FCF from 2013 to 2014), with the FCF/revenue ratio dropping over this time period from 9.81% to 6.74%. However, current finance facilities, $19.04m of total current liabilities of $19.96m, are set to mature in March 2016, with SHJ intending to refinance these borrowings. This certainly de-risks the debt position and debt coverage ability. I would, however, suggest, that it may take several years for SHJ to reach a comfortable ratio between FCF and total borrowings.

All of the above is prior to any recent changes. As stated on page 10 of the recent market guidance, "it follows less cash will ultimately flow through the business for each dollar of work ascribed to a file". We have hints here that perhaps FCF will again decrease from prior FY, or at least will be less than originally forecast/expected. Although the market reaction in this instance is as a result of the recent EBITDA guidance, is there further lurking under the surface? Have SHJ bitten off more than they can chew with the various acquisitions undertaken over the past 2 years? I have been somewhat embroiled in the SGH saga, and am now much more swayed to caution in such instances (once bitten, twice shy).

All IMO. Interested to hear others' opinions here.