I am as disappointed as all shareholders with the performance reported yesterday. My reason for investing in the company was based on:
* a review of past performance and understanding that to grow the business as it had there would eb an ever increasing need for capital to fund no win no fee. When I allowed for timing issues of cash in cash out the operating cash flows painted a better picture in my view
* the market supported this growth plan with an increasing share price from the entry to UK in 2012 up to the purchase of PSD
* there was no mainstream concerns about the purchase at the time from industry analyst, in fact many did see it as transformational (in the right sense of the word)
* though I didn't research Quindell I was aware of its own problems. I reasoned that the firepower of not only SGH and its lawyers but EY, Citi, Greenhill, PWC (to a lesser extent) and due diligence no doubt conducted by the finance syndicate underpinned the company as investment grade
* I could reasonably extrapolate future performance based on company guidance at the time of acquisition to regard a rerate upwards to reflect the company doubling in size and then above reasonable growth around 8% from that new base provided a stream if dividends in perpetuity
I continued to support the company even after precipitous share price fall because:
* a belief there is a global tendency for rumoutrage in the investing world designed to be overly pessimistic or overly optimisit, this is how profits can be generated. I reasoned on the back of what the company said that SGH was victim to an overly pessimistic view
* I maintained that view due to relying on what I considered ot be the only source of truth - the compnay announcements and interpreation of those announcements
* despite problems reported in Dec, I reasoned the company had said 1H would be light and earnings heavily weighted to 2H. I was encouraged by mention of improving cash flows and a trajectory indicating a strong start to FY17
Yesterday's news forces me to take a different view in part. I am disappointed that there was no attempt by management to explain the the difference between today and the due diligence indicating 30% accretive. Equity left in the business has now set a new benchmark and at face value it is extremely concerning to see debt to equity in excess of 200%. No doubt if a rabbit isn't pulled out of the hat then early repayment of debt by March 2107 is impossible without additional equity and that raises the question who would pump more money into ti in its current form.
My optimistic self relies on perhaps it really has been a double kitchen-sinking and there is in fact a pile of cash about to come in from receivables, current WIP, NIHL that will make a big dent in debt over the next 12 months. If that was to occur it would paint the company in whole new light. I still believe in the ABS structure and I still believe there is a need for an intermediary between clients and insurers in the space that SGH want to play in - collaborative not adversarial. However, until the debt situation is clear one way or another it is too high risk.
At this time I am supporting a class action if that what it takes to get to the truth of who advised what on the PSD deal. I haven't registered as yet.
I decided to stop posting on Sunday morning after one of many posts attacking me. I took it in good humour though saying Mighty had died. Mighty has risen for this one and final post due to the disturbing attention aimed at me yesterday, I thought I should at least explain in a small way. Oh and finally, some may recall I took the unusual step of posting a brief bio a couple of weeks ago in an attempt to dispel ridiculous comments that I work for SGH or that I am a lawyer.
Good luck to all.
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