Slater and Gordon shares were crushed again.
They dropped hard at the session opening, at one stage hitting 60 cents each, before clawing back some lost ground.
At the close, the shares were at 69 cents, down 26.6% on the day, adding to the 51% loss on Thursday. They have fallen a long way from a year high of $8 in April.
Investors have been abandoning the law firm after the British government announced proposals to limit compensation for road accidents, a big part of Slater and Gordon’s business in UK.
Yesterday Slater and Gordon lost more than $300 million in market capitalisation in one day. The shares have dropped about three-quarters in value in a week.
The market capitalisation is now about $271 million, down from $2.8 billion eight months ago, and far less than the company’s net debt of $650 million.
A long list of brokers changed their ratings on Slater and Gordon yesterday. Macquarie went to UNDERPERFORM and a 12 month target of $1, down from $4.59. UBS went to NEUTRAL and a price target of 90 cents, down from $2.80.
The British government’s moves against compensation culture means that the business Slater and Gordon bought for $1.3 billion in March, Quindell, is under threat from proposed regulatory measures.
UBS says the changes, if implemented, could have a significant impact on the UK operations.
The recently acquired division is primarily focused on road traffic accidents, providing legal services, motor assistance and health services.
According to UBS analysis, the road traffic cases represent about 90% of the business.
The market is also finding it hard to believe Slater and Gordon’s full year earnings guidance of $205 million after a weak first half.
The UK business had a slow start to the financial year, mainly because of weakness in the road traffic accident practice.
Macquarie Securities, in a note to clients, says Slater and Gordon’s balance sheet doesn’t give much flexibility to withstand a significant earnings hit.
“Acknowledging the heavy sell-off in recent days and the discount to our valuation based on current earnings, we still see significant further downside if the (UK) reforms are implemented,” Macquarie says.
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