SHINE SHARES CRASH ON PROFIT WOES
Written on the 29 January 2016 by Nick Nichols
SHINE Corporate (ASX:SHJ) shares plunged as much as 76 per cent in early trade as the Brisbane-based legal firm slashed its earnings guidance for FY16, largely on the back of a poor performance from its personal injuries business.
The share slump follows weeks of trading limbo for the company after its suspension from trading following an initial trading halt on January 19.
Shine has announced a $17.5 million provision this financial year after a review of operations revealed a number of personal injury cases on its books were unlikely to succeed.
After initially forecasting in August that EBITA would land between $52 million and $56 million, Shine is now expecting it to range between $24 million and $28 million in FY16.
Shares in the company crashed to a low of 47c from $2 ahead of the trading halt. More than 21 million shares changed hands in the first hour of trading.
Apart from shortfalls in the personal injury business, Shine says the current year's earnings will be impacted by 'sub-optimal fee-earner to file ratios', regulatory reform and increased competition in the Queensland market.
Shine's managing director Simon Morrison says the higher provisions will not impact operating cashflow in the first half of FY161, and 'protects the balance sheet against the risk of future writedowns'.
"Our underlying business model remains solid," he says.
"We have continued to bolster our senior executive team to address and improve future business performance and we are seeing early benefits.
"The company will continue to execute on its long-term strategy having addressed the matters set out in this announcement."
Shine expects its core business to improve in the current half-year, as it has in previous years.
Meanwhile, Shine has informed its bank of the adjustment, and the revised earnings forecast keeps, revealing that it has not fallen foul of its banking covenants. Shine is expecting to finalise a new debt facility soon.
The company will release its half-year results on February 23, and while it does not plan to pay an interim dividend it says investors will receive a full-year payout.
Meanwhile another Brisbane law firm, Slater & Gordon (ASX:SGH), has backpedalled on its promise to update the market in January on gross operating cash flow, causing shares in the law firm to also drop significantly.
Shares dropped as much as 17 per cent yesterday after the company reported it was still working to finalise its half year results.
Slater & Gordon advised in December it would provide an update on earnings for the six months ending 31 December 2015 in January, however now says it will publish the results on February 29.
"The company continues to work with auditors and advisors to finalise its half year results including statutory gross operating cashflow," says the company in a statement to the ASX.
Author: Nick Nichols