By Tom Winnifrith, The Sheriff of AIM | Thursday 25 August 2016
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from ShareProphets). I have no business relationship with any company whose stock is mentioned in this article.
This is not quite what Slater & Gordon (SGH) promised its shareholders when buying the fraud Quindell (QPP) in early 2015 - today there was a pre results profits warning. The management tried to polish it up but a turd is a turd however one views it.
Sales in the second half of the year to June 30 2016 came in at cA$421 million down from A$487 million in H1. The weakening pound might explain a good part of that but not all. On the basis of full year sales of A$908.2 million EBITDAW (bullshit earnings with a W ) were A$9.8 million in H2 compared to minus $58.3 million in H1. But the loss after tax in H2 was $59.3 million down from A$958.3 million in H1 -most of that being goodwill write-offs on Quenron assets. Hence the full year loss will be $1.0176 billion. Ouch.
Net debt at the full year was A$682.3 million up from $614.1 million a year previously but down from $741.4 million as at December 31 2015. But again the collapse in the value of sterling has served to make this look better than it should something the company acknowledges. The bottom line is that even now this company is not generating cash and with legislative changes to the UK market ( 40% of revenues in H1) set to be dramatically adverse as at 2017 things will only get worse.
Shares in S&G fell 10% today to A0.52 - that is still up on march lows of $A.033 but well down on the $7.95 reached in the peak of what S&G regarded was a transformational deal. Well it was indeed transformation in that it has pushed S&G to the brink of insolvency and it still may well still sink the poltroons as the debt mountain just looks unsurmountable.
As a general rule buying cash guzzling companies that had liabilities noit cash and were insolvent at the purchase point and were demonstrably engaged in industrial scale fraud for £650 million is not a smart move. You don't need an MBA from Insead to figure that out yet this is exactly what S&G boss Andrew Grech did. How he still has his job defies belief. Clearly, in the land of high culture folks are more forgiving of imbeciles who destroy value in such a cavalier fashion than they are here in the old Country.
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