Deutsche Bank explains the Slater & Gordon problem

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Slater and Gordon is getting clobbered again today.

After falling more than 50% in trade yesterday to close at 94c, the share price is tumbling again today and a short time ago was at 76c, down around another 20%.

The horror show has been triggered by two things: the market was already nervous about the company’s earnings guidance, and the British government has announced surprise regulatory proposals which, if implemented, would limit payouts for injuries in car crashes, evaporating the earnings potential of Slater and Gordon’s business in Britain, which is mainly run on compensation claims.

Deutsche Bank yesterday cut its rating on the stock from Buy to Hold and slashed its price target from $3.35 to $1.65.

Here’s Deutsche, emphasis added:

The UK Government proposes restricting [road traffic accident] compensation rights for pain and suffering in minor soft tissue injury claims, as well as increasing the limit of the Small Claims Court from £1,000 to £5,000. A consultation process is scheduled to begin in the new year. RTA cases make up c.95% of core legal cases (excl. NIHL) in SGS Legal Services while industry estimates that c.70% of RTA case volumes relate to claims with a value of less than £5,000.


Now read: Slater and Gordon is getting destroyed.

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