Slater & Gordon Limited shares fly on NO CHANGE to financial guidance

Credit: Patrick McKnight

After last week’s update on potential legislative changes that may affect Slater & Gordon Limited‘s (ASX: SGH) operations in the UK – and the subsequent performance of the company’s share price – it was perhaps inevitable that another update would be forthcoming with more details.

Specifically, Managing Director Andrew Grech stated:

  • Slater & Gordon reaffirms its 2016 guidance of A$1,150m in Fee Revenue and A$205m Earnings Before Interest, Tax, Depreciation and Amortisation and changes in Work in progress (EBITDAW)
  • Impact of any changes relating to Road Traffic Accident (RTA) cases in the UK is difficult to evaluate as the consultation process will not commence until January 2016, and the earliest implementation date is likely April 2017. As a result there may be no material effect to SGH in 2016 or 2017 on this level.
  • Regulatory changes will have no impact on Slater & Gordon operations in Australia
  • Not expected to have a material impact on parts of Slater & Gordon operations in the UK
  • The impact on Slater & Gordon Solutions (SGS) in the UK cannot yet be reliably estimated

Furthermore, management believes that

  • demand for credit hire and repair services will be unaffected
  • medical reporting and rehabilitation services will continue to be sought by injured people
  • SGS is well positioned to be leading provider of legal services from 2017 and beyond

Mr Grech also announced that Slater & Gordon will continue to update the market as more information becomes available, and will decline to offer post-financial year 2016 guidance until the final form of any changes are released by the UK government.

Certainly it appears correct that credit hire, repairs, medical reports and rehabilitation will continue to be sought by those who experience road traffic accidents – after all, these are vital services.

Perhaps a more prescient question would be to ask ‘are individuals less likely to litigate if the proposed changes to UK law come into effect?‘ and the answer to this question is difficult to evaluate, yet is key to any impact on revenue if the proposed changes go ahead.

Slater & Gordon remains upbeat about the SGS acquisition and its ability to respond to regulatory changes, reminding investors that it has done this successfully in the past in Victoria, Queensland, and New South Wales.

However, I believe that shareholders and potential buyers are best to remain cautious. The majority of Slater & Gordon Solutions revenue is generated from Road Traffic Accident cases and the additional uncertainty makes the company too risky for my liking.

Curiously however, listed competitor Shine Corporate Ltd (ASX: SHJ) might now be a bargain, given that its shares plummeted last week despite the fact that the company has no exposure to the UK.

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Motley Fool contributor Sean O'Neill has no position in any stocks mentioned. Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no 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.

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