Slater & Gordon’s shares are “nearly worthless”, an analyst has claimed on the back of its dire half-year results earlier this week. He has set a target price of just 1c.
The firm’s share price on the Australian Stock Exchange fell to an all-time low of 7c this week, although it jumped 40% in trading today to 10c.
The second six months of 2016 – the first half results of its 2017 financial year – saw the firm report a net loss of A$425m (£262m), A$350m of which was made up of an “impairment charge against the carrying value of UK intangible assets”.
It admitted that it would not be able to pay off the bank debt that falls due next year and would need the continuing support of its lenders “to continue as a going concern”.
The note to investors by Gareth James, an analyst at Morningstar, said the shares were “materially overvalued” at the 16c mark they closed at last Friday.
“The A$425 million loss reflected an improvement on the A$958 million loss in the previous corresponding period but remains a substantial concern. Both operating and investing cash flow also remain negative with the book value of equity also negative A$126 million and A$680 million in net debt as at December 31 2016.
“The auditors, Ernst and Young, noted there was material uncertainty that the company would continue as a going concern. Management continues to work on a recapitalisation plan but highlighted the current dependence on lenders to operate.”
Mr James said that aside from “an urgent need to improve the performance of the business”, Slater & Gordon’s management also “have their hands full” with the investigation by the Australian Securities and Investments Commission into whether the firm’s accounts may have been falsified, defending the investor class action being brought by Maurice Blackburn, and litigation with Watchstone Group Plc (formerly Quindell) in a bid to recover some of the money it paid to buy the company’s professional services division.
He concluded: “Considering the lack of progress with the turnaround of the UK business and deterioration of the Australian business, the turnaround plan appears to be making insufficient progress to salvage any value for equityholders. We continue to believe existing equity is nearly worthless.”
Morningstar is now going to “cease coverage” of Slater & Gordon and according to The Australian newspaper, others are going to do the same.
“Given the lack of broker interest, it was little surprise the group received no questions on an analyst conference call yesterday,” the paper said, noting that the firm has now written down virtually the entire cost of the Quindell acquisition.
A writer on Motley Fool, a website for investors, said there was no reason for the share price rise today, adding: “As tempting as it may be to pick up shares close to its all-time low, I think the sensible thing to do is to give its shares a wide berth.”