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What’s happening to the Slater & Gordon Limited share price?

Shares of Slater & Gordon Limited (ASX: SGH) were back on top on Monday after the listed law firm confirmed to the ASX that it was in compliance with its listing requirements.

Slater & Gordon’s share price closed at 89.5 cents on Monday, up 7.8% compared to the previous closing price but down 89% since they peaked above $8 a share in April this year. Their current price is also more than 19% above the 75 cent price target Deutsche Bank recently gave the shares.

The law firm was yesterday forced to respond to a query by the market regulator, the Australian Securities Exchange, in which it confirmed it was still in compliance with its continuous disclosure obligations. This query was in relation to Slater & Gordon’s most recent announcement in which it said its earnings guidance for the 2016 financial year (which had been provided less than three weeks prior) was now being reconsidered.

What happened?

Yesterday’s response to the ASX query suggests that the group was still confident it could hit its 2016 financial year earnings targets as at 30 November, but became aware of information related to its British business indicating worse-than-expected performance results late on Wednesday 9 December.

Slater & Gordon said that this draft information was internal management information “which, without verification, was insufficiently definite to warrant disclosure.” Clarification, verification and confirmation of the information was completed on the night of Wednesday 16 December, communicated to the board the following morning and then to investors before the market opened on Thursday 17 December.

While Slater & Gordon looks to have cleared the air surrounding its continuous disclosure obligations (which investors clearly appreciated on Monday), there is still plenty of uncertainty surrounding the group.

For starters, it is subject to two major investigations by regulators in the United Kingdom and Australia related to its accounting practices, two potential class actions and there’s the potential for impairments to goodwill related to its controversial acquisition of Quindell Plc’s Professional Services Division earlier this year.

What’s more, some experts think this write-down of goodwill could spark an “emergency” capital raising, according to The Australian Financial Review, together with a reduction in dividends to avoid breaching its debt covenants.

Should you buy?

Slater & Gordon has had a dreadful year and there is still plenty of uncertainty lingering over the company’s head. Although much of this is likely already priced into the shares, it’s still possible the shares could have even further to fall. While they might seem cheap, I’m certainly not a buyer yet.

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Motley Fool contributor Ryan Newman 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. You can follow Ryan on Twitter @ASXvalueinvest.

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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