PSD goodwill write down is a routinely tax efficient exercise ........or would you prefer to pay more tax?
SGH were obviously bumped into complete compliance with the Statement of Standard Accounting Practice.
Effectively it means no value can be placed on slices of WIP without near certainty that those slices will be near certain income. Frankly I think the new SSAP isnt right. Why? WIP obviously does have value.
Why did they bounce themselves into agreeing UNDERVALUATIONS? To get rid of the investigation pdq.
I would argue that they should go back to the regulatory authorities and point out the market distortion likely to flow from undervaluation of WIP. ........apart from anything else - how can you expect anyone to finance WIP which ends up as WIP with no value reducing short term profits. It will reduce the ability of financiers to finance.
Where there is a clear past pattern in routine WIP ( EG SGS motor case processing) statistics can prove with 95% accuracy what % of WIP will and will not end up as fee income.
It suits the accountants drafting the SSAP because in the main their organisation structures are partnerships or limited partnerships. Placing no value on big slices of WIP reduces profit and reduces tax. BUT there is obvious value in WIP
and in my book, undervaluation of WIP is just as bad as overvaluation or over aggressive valuations.
It may be apt to place no value in HL cases WIP ....because there is NO past pattern. The same can NOT be said for SGS motor claims processing WIP . It seems to me the new SSAP is DAFT, suits the partnership professionals but should NOT apply to WIP on routine Motor Claim processing in a public listed company with access to public markets fro capital.
While application of the SSAP to SGS may be daft, - the same fee income "eventuates" .....so when you write down WIP you end up with Higher Profits in subsequent period. So there are 3 reasons to think 2016/17 will be stonking for SGH:
1. Wilson research points to 15% case throughput reduction That is OBVIOUSLY cash generative 16/17
2. This 15 % will not be replaced with new WIP and so the net effect is supernormal margins on that 15%. 16 /17
2. NIHL case take up comes mostly to an end by June 17 and 9 figure cash and 9 figure profits expected
Clearly SGH wont have to find the finance to pay the CT tax - Good in context.
Mel
SGH Price at posting:
40.5¢ Sentiment: Buy Disclosure: Not Held
