Stone motherless broke I believe is the way you describe Slater and Gordon (SGH), the listed legal group. B.R.O.K.E. and it will take a heroic act of generosity from the banks to keep it alive.
Yesterday saw the value of all shareholder investments in Slater and Gordon effectively wiped out with the group disclosing another round of heavy losses as its auditors also warned the group faces “material uncertainties” over its survival (something of an understatement).
The company’s losses reached $1.3 billion as of the end of December, which exceeds the $1.1 billion of equity on the balance sheet.
In fact the company now has net liabilities of nearly $126 million (dominated by bank and other debts of $736 million and nothing to repay them with) against net assets of $305 million at June 16.
As a result, the underlying value of each of its shares on issue is now minus 36c, and yet investors were willing to pay around 12 to 12.5 cents for the shares (down more than 21%).
Optimism runs deep among some investors who are really betting on the ‘no option’ option that they reckon the banks have – no option but to bail out the company and recapitalise by taking control, destroying existing shareholders and then floating it off.
The company is negotiating a new financing package with its bankers in what is seen as a ‘life-saving’ deal for the company.
“The continued support of the company’s lenders is fundamental," directors warned, "as current levels of bank debt exceed total enterprise value".
Yesterday’s half year report fleshed out the details of the downgrade and warning in the middle of February – and made clear that the company is dead in its current form.
Revenue fell to $322.7 million in the December half, which is well below the $487.5 million a year earlier.
The company is the subject of an ongoing investigation by the corporate watchdog ASIC, and has been targeted in a shareholder class action which asserts the company “engaged in misleading and deceptive conduct" as well as breached continuous disclosure obligations of public companies.
Auditors, Ernst & Young, warned of "material uncertainties" relating to the group’s survival, highlighting the latest loss, the negative cashflow as well as the fact that all shareholder equity has been wiped out.
It pointed to "the existence of material uncertainties that may cast significant doubt" about the group’s ability to continue as a going concern.
