5 Things To Know About The Slater & Gordon Limited Share Price Collapse

The Slater & Gordon Limited (ASX:SGH) share price has shed more than 88% since early April.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

A version of this article originally appeared on Fool.com.au

No words can describe the anguish felt by shareholders of Slater & Gordon Limited (ASX: SGH) who watched helplessly as their shares more than halved in price last Thursday.

The shares plunged to a low of 89.5 cents just after midday before ending the session at 94 cents, down an incredible 51.4% for the day. They’ve lost more than 69% over the last week and 88% since early April and are now trading below their 2007 initial public offering (IPO) price of $1 for the first time.

To put that in perspective, the market is now valuing the company at just $330 million, down from roughly $1.1 billion last week.

Here are five things you need to know:

  1. Existing concerns

Slater & Gordon’s share price had fallen dramatically before yesterday. This was the result of two separate investigations into its accounting activities; its controversial acquisition of Quindell earlier this year (setting it back roughly $1.2 billion); and concerns about its book-keeping processes.

  1. Heavily Shorted

Slater & Gordon has become one of the most heavily shorted companies on the ASX (meaning investors are betting on the share price falling further). According to ASIC, 16.3% of its shares were shorted on 20 November, 2015, meaning any bad news is likely to have a dramatic impact on the share price.

  1. Proposed changes to personal injury law

With that in mind, yesterday’s heavy decline came after the company released a market sensitive announcement. The company spoke briefly about proposed changes to personal injury law in the UK which, if implemented, would impact on the rights of people injured in road traffic accidents.

By increasing the “Small Claims Track” minimum from £1,000 to £5,000, the proposed changes could stop small claimants from using lawyers on a ‘no win / no fee’ basis. Instead claimants would have to apply directly to a defendant’s insurer.

Analysts are already sceptical whether the company can achieve its lofty earnings guidance, so yesterday’s news couldn’t have come at a worse time.

  1. Quindell 

As if the Quindell acquisition hadn’t caused enough angst amongst shareholders, the vast majority of earnings from the division (now known as Slater & Gordon Solutions, or SGS) come from road traffic accidents.

  1. Effect on earnings

Slater & Gordon said it doesn’t expect there to be any impact on its performance this financial year (FY16), while it reiterated its guidance for $205 million EBITDAW (earnings before interest, tax, depreciation and amortisation, less the movement in work in progress). However, if the proposed changes are implemented, it could well have an impact on earnings in FY17 and beyond.

As highlighted by The Australian Financial Review, UBS expects a 33% decline in revenue in FY17 while EBITDA could fall by 43%. The AFR said UBS has also set a 90 cents price target on the shares.

Should you buy?

Slater & Gordon’s share price collapse has no doubt intrigued some investors keen to pick up a bargain. Although the shares might look cheap, there is still a multitude of uncertainty surrounding the company and its circumstances which could force the shares even lower from here.

In other words, an investment today would seem more like speculation which is a dangerous game to play.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

The original author of this article, Motley Fool contributor Ryan Newman has no position in any stocks mentioned. You can follow Ryan on Twitter @ASXvalueinvest

Neither The Motley Fool Australia nor The Motley Fool UK has a position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

More on Investing Articles

Petrochemical engineer working at night with digital tablet inside oil and gas refinery plant
Investing Articles

Can the Centrica dividend keep on growing?

Christopher Ruane considers some positive factors that might see continued growth in the Centrica dividend -- as well as some…

Read more »

Smiling family of four enjoying breakfast at sunrise while camping
Investing Articles

How I’d turn my £12,000 of savings into passive income of £1,275 a month

This Fool is considering a strategy that he believes can help him achieve a stable passive income stream with a…

Read more »

Person holding magnifying glass over important document, reading the small print
Investing Articles

2 top FTSE 250 investment trusts trading at attractive discounts!

This pair of discounted FTSE 250 trusts appear to be on sale right now. Here's why I'd scoop up their…

Read more »

Smiling young man sitting in cafe and checking messages, with his laptop in front of him.
Investing Articles

3 things that could push the Lloyds share price to 60p and beyond

The Lloyds share price has broken through 50p. Next step 60p? And then what? Here are some thoughts on what…

Read more »

Young female business analyst looking at a graph chart while working from home
Investing Articles

£1,000 in Rolls-Royce shares a year ago would be worth this much now

Rolls-Royce shares have posted one of the best stock market gains of the past 12 months. But what might the…

Read more »

Investing Articles

Are HSBC shares a FTSE bargain? Here’s what the charts say!

There are plenty of dirt-cheap FTSE 100 banking stocks for investors to choose from today. Our writer Royston Wild believes…

Read more »

Three signposts pointing in different directions, with 'Buy' 'Sell' and 'Hold' on
Investing Articles

Just released: Share Advisor’s latest ‘Hold’ recommendation [PREMIUM PICKS]

In our Share Advisor newsletter service, we provide buy, sell, and hold guidance for our universe of recommendations.

Read more »

Investing Articles

Investing £5 a day could help me build a second income of £329 a month!

This Fool explains how £5 a day, or one less takeaway coffee, could help her build a monthly second income…

Read more »