Shine Corporate Ltd cancels dividend as profit sinks 88%

Credit: Patrick McKnight

Shares of law firm Shine Corporate Ltd (ASX: SHJ) fell more than 10% today following the release of its half-year report.

In the six-month period to 31 December 2015, Shine reported a 13% fall in revenue to $64 million and a profit of $1.33 million – down 90% on the prior corresponding period.

The company, which recently commenced a comprehensive review of the way it reports its financials, said today’s result reflects the changes it implemented to its reporting structure, and impairments associated with the review.

“The major feature impacting the first half result was the additional provisions totaling $17.5 million which were recognised against work in progress, disbursements and debtors,” Managing Director, Simon Morrison, said. “These additional provisions are regarded as one off, the majority of which have been taken up to reflect the risk that some matters, other than those for which a provision is already held, will ultimately not result in a fee for Shine.”

The company’s board elected to withhold from paying a dividend to shareholders. However, they do believe the company will be in a position to reinstate the dividend upon announcement of the full-year results.

Further, Mr Morrison said his team remain confident in Shine’s business model. “In addition, despite the result for the half year, we remain confident in the Shine business model and are focusing on improving the levels of recoverability and improving the results,” he said. “We look forward to capturing these improvements and reporting on that progress at the full year.”

The company reaffirmed full-year EBITDA (earnings before interest, taxes, depreciation and amortisation) guidance in the range between $24 million and $28 million.

Foolish takeaway

Shine, like Slater & Gordon Limited (ASX: SGH) before it, is being forced to reassess the way it presents its results. Arguably, the underlying business model may not have changed materially as a result of the new reporting structure. Therefore, value investors may think today’s share price weakness is an opportunity. However, I think it’d be wise to consider the risks before building a position.

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Motley Fool writer/analyst Owen Raszkiewicz owns shares of Slater & Gordon. Owen welcomes -- and encourages -- your feedback on Google+, LinkedIn or you can follow him on Twitter @ASXinvest.

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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