SLATER & GORDON'S WEEK JUST GOT WORSE
Written on the 2 March 2016 by Nick Nichols
SHARES in legal group Slater & Gordon (ASX:SGH) continue to languish at record lows following a two-day sell-off this week, prompted by the likelihood that the legal group is almost certain to face a class action over its financial performance.
The shares edged 1c higher in early trade to 32.5c, off a record low of 30c this morning.
More than 74 million shares changed hands on Monday and Tuesday as the share price was decimated by the $876.4 million write-down in the value of its trouble-plagued UK division.
It bought the UK-based Quindell business, since renamed Slater and Gordon Solutions, for $1.3 billion last March.
The two-day share sell-off has wiped another 60 per cent off the value of the Melbourne-based group's shares since Friday, or $175 million in market value. Slater and Gordon's market capitalisation has slumped to $116 million.
The group's problems have been amplified by the prospect of a class action by shareholders over what directors knew ahead of issuing a profit guidance for FY16 as recently as the company's AGM in November.
Slater & Gordon this week posted an interim net loss of $958.3 million, largely attributed to the UK writedowns.
ASIC this week gave the company the all-clear following an investigation into its financial accounts of the past two years. The corporate watchdog says it ceased its inquiry after the firm adopted a new accounting policy based on revenue from contracts with customers.
Key issues confronting Slater & Gordon in the near term include its relationship with bankers following the huge loss in the company's capital value.
Both Westpac (ASX:WBC) and NAB (ASX:NAB), who have a syndicated debt facility that is due to expire in March next year, took a close look at the company's books in January. The company has until April 30 to renegotiate its debt facility with the banks or face a call-up of its loan by this time next year.
Slater & Gordon says it is complying with its debt agreements and CEO Andrew Grech say the pay-down of debt remains a priority for the group this year.
Meanwhile, the company's efforts to reassure investors is also being sidelined by the prospects of a class action, primarily from Maurice Blackburn.
Maurice Blackburn's announcement this week that legal action 'now seems almost certain' has spooked investors further.
The class-action specialist stirred the pot just after the company released its earnings results on Monday, with the national head of class actions Andrew Watson saying the company's writedown cast 'enormous doubt' on how Slater and Gordon managed the UK acquisition.
Maurice Blackburn says it has received registrations from 'thousands of aggrieved shareholders' through its website.
Author: Nick Nichols