Slater and Gordon (SGH) shares were whacked again after the company finally confirmed suggestions from analysts and shareholders that its profit guidance for 2015-16 was no longer accurate.
The company told the ASX in a statement that it was withdrawing its recently reaffirmed full year guidance for 2015-16 revenue in excess of $1.15 billion and earnings before interest, depreciation, amortisation, and movements in work and progress of $250 million.
Investors took fright again and sold down the shares by close to 22% to a day’s low of 81.5 cents before some buying appeared and lifted them to 91 cents at the close for a loss on the day of more than 15%.
That took the fall in the shares in the past year to close to 90%. Yesterday’s low was well above the all time low of 59.5 cents late last month in the sell-off linked to fears about its big UK purchase earlier this year and then concerns about its current financial performance.
SGH 1Y – Slater & Gordon backflips on earnings guidance
Slater & Gordon bought its UK legal services business Quindell in March for $1.3 billion, raising much of the money from shareholders. It raised $890 million from shareholders at $6.37 a share, and saw its debts rise by around $600 million to pay for the deal. Shareholders who paid the $6.37 will be non to happy and facing huge losses.
The company says the recently acquired Quindell is performing below expectations.
"There is a significant risk that full year guidance will not be met and accordingly the company withdraws its previous full year guidance pending the outcome of the review," the firm said in a statement.
The law firm told the ASX that it was reviewing its approach to financial forecasting and has withdrawn the recently reaffirmed full-year guidance for 2016 of revenue and EBITDA.
The company’s CEO Andrew Grech said in the statement that “lower than expected trading results in segments of the business in the UK in November” and a review of the company’s forecasting processes by new chief financial officer Bryce Houghton had forced the company to withdraw its guidance.
“We have previously advised the market that the performance of our UK operations during the first half has not been in line with our expectations,” Mr Grech said in yesterday’s statement.
"It is now clear to us that the slower rate of case resolutions in the first half has had a larger impact than previously thought, and that this may well flow through to a reduced profit for the full year.
“For this reason we have withdrawn our full-year guidance and we are conducting a review of our forecasting methods so that we can provide the market with greater clarity moving forward."
The announcement comes one week after the law firm said it had formally appointed Ernst & Young as its auditor, ending its long-standing arrangement with boutique firm Pitcher Partners.
And there could be more bad news ahead with Mr Grech also hinting that the company would consider whether it needed to take an impairment on the value of the UK business, particularly given the announcement of potential regulatory changes in the UK.
