Slater & Gordon’s share price tumbled by more than 50% overnight as investors reeled at the potential impact of the personal injury reforms unveiled yesterday in the Autumn Statement.
It fell below A$1 for the first time since the firm listed in 2007. The Australian-listed law firm sought to reassure investors, issuing a statement that it “does not expect there to be any impact on its FY16 performance” as a result of the announcement.
It said the £5,000 small claims limit and end to general damages in minor whiplash cases “would impact on the rights of people injured in road traffic accidents”.
“The Ministry of Justice intends to consult on the details of the government proposal in the new year and the company will participate in the foreshadowed consultation process and provide further information on the impact (if any) on its financial performance in FY17 and beyond.
“Whilst the government’s announcement was unexpected, the company believes that the scale and diversity of the Slater Gordon Solutions (SGS) business in the UK positions it well to deal with the potential impact of any future legislative change.”
SGS is the rebranded professional services division of Quindell that Slater & Gordon bought earlier this year. Earlier this month we reported that 95% of its “core legal cases” were road traffic claims.
The share price has been on a downward spiral since the spring, when it hit a high of A$8, because of doubts about the wisdom of the Quindell deal and accounting issues that were uncovered in the Australian business. It fell earlier this week by around 20% following the company’s annual general meeting last Friday and news that while it was on track to hit its earnings target, cash flow was lower than expected.
An article published today on the website of ABC, the Australian Broadcasting Corporation, began: “Is one of Australia’s oldest and most famous law firms — and the first in the world to list on a stock exchange — going broke?”
It said that while the overnight fall was due to the Autumn Statement, “the underlying issues go deeper”.
It said: “Slater and Gordon’s market capitalisation has now been eclipsed by its debt of more than A$700 million and rising. The firm raised nearly A$900 million, mainly from institutional investors, to fund the purchase of Quindell, and also borrowed more than A$350 million from a syndicate of banks. The bankers might be pouring over the books now.”
The Australian Financial Review wrote: “The changes must raise further doubts about management’s judgement given all the warnings around the uncertainties and costs of the [Quindell] deal. The future potential earnings ability of its group, and the ability of its balance sheet to weather further shocks are also highly uncertain.”