Slater & Gordon (SGH)

By Jason Fittler,

Slater & Gordon (SGH) was founded in 1935 in Melbourne as a law firm primarily serving unions and workers in disputes.

In 2007, it became the first publically listed law firm in the world.

The company entered the UK in 2012 and now possesses roughly even revenue split across Australia and the UK.

SGH is a consumer law firm and provides services across the Personal Injury law (PI) and General Law (GL) divisions, which together include a wide range of practice areas, such as PI, family law, conveyancing, wills, estate planning & probate and criminal law.

Here is a company that 9 out of 11 analysts have it outperforming the market; however, for me it is one to avoid.

This does not mean that these analysts are right just that I see better value elsewhere in the market.

If we take a closer look at the company, it performs on a Beta of 0.81, which means it will generally underperform the market.

It has cash flow issues at present, which has seen the company’s share price fall from the peaks in 2015 financial year of $7.80 back to the current levels of $5.05.

This puts annual growth at zero for the year to date.

If we look further, we see a very small forecast dividend of 1.75% gross, which in part at least is funded through debt. 

The next 12 -18 months is expected to be a continuing period of poor cash flow and has the expectation of more work in progress write-offs.

I note however that our price target is $7.90 some 36% above the current price, so it is looking cheap.

With most analysts already calling this company a buy I suspect that the buying support is drying up, add to this continued cash flow issues, and we can see why the price is down.

In hindsight, this could be at the current price the buy of the year.

However, not for me as the risk is too great for the reward on this company.

Avoid.  

For more information about Slater & Gordon (SGH) please contact us on 07 4771 4577.