It was a wild ride for the ASX's largest listed legal firm Slater & Gordon Limited (ASX: SGH) last Thursday with the stock plunging around 15% to a low of $2.65 at the open – a level not seen since mid-2013.
However, the stock did regain some composure to finish the day down only 3.1% at $3.17 – which was certainly an improvement on the level of early morning falls – shareholders are still nursing losses of 50% over the past three months.
The cause of the sell-off was news from the UK that Quindell, the UK insurance firm which sold a division to Slater & Gordon for $1.3 billion would be restating its accounts. The news contained plenty of concerns for investors including (according to a report in the News Corp press) that the previously reported profit in 2014 of £175 million from the Professional Services division (acquired by Slater & Gordon) would be restated as a loss of £137 million under its new accounting policy.
Admittedly the share price of Slater & Gordon is starting to look pretty appealing for value investors, however, it is difficult at present to quantify the risks the firm faces from this massive UK acquisition…it could be safer to stay on the sidelines for the time being.
Safer alternatives
The successful listing of Slater & Gordon – which was a world first for a legal firm – has led to two other firms following suit.
Shine Corporate Ltd (ASX: SHJ) – The firm operates in niche areas that have some overlap with the services provided by Slater & Gordon. The stock is down 18% in the past three months including losing 7.8% yesterday despite no negative company specific news.
IPH Ltd (ASX: IPH) – The holding company for intellectual property specialist firm Spruson & Ferguson has enjoyed a stellar run since listing late in 2014. In fact, if the positive share price momentum continues for IPH and if the negative momentum was to continue for Slater & Gordon, IPH could soon be the larger company in terms of market capitalisation!
