Slater and Gordon shares were dumped after the law firm said it wouldn’t be hitting its profit guidance because its troubled UK business was performing below expectations.
The shares dropped 20% and closed at $0.89, down 17.21%.
The law firm, which also flagged the possibility of a write-down in the value of its UK business, has lost more than $2 billion in market capitalisation this year and hundreds of millions since the British government last month announced proposals to limit compensation for road accidents.
The market cap of the business is now $331 million, down from $2.8 billion in April. The company’s net debt is $650 million.
The UK government’s move means that the business Slater and Gordon bought for $1.3 billion in March, Quindell, is under threat. About 90% of cases are related to traffic accidents.
Today the company announced that there was a significant risk that full-year guidance would not be met because of slower than expected resolution of cases in the UK.
Its 2016 financial year guidance was for $1.15 billion in fee revenue and $205 million in earnings.
“It is now clear to us that the slower rate of case resolutions in the first half has had a larger impact than previously thought, and that this may well flow through to a reduced profit for the full year,” says group managing director Andrew Grech.
“For this reason we have withdrawn our full year guidance and we are conducting a review of our forecasting methods so that we can provide the market with greater clarity.”
However, he says the performance of the UK business has been improving for the last few months and is expected to contribute positively to cash flow in December and during the rest of the financial year.
“The trajectory of the UK business provides confidence that we will trade through this period to be in a stronger position by the end of this financial year,” says Grech.
The company is also reviewing the goodwill value of the UK business.
“The impairment review will take into account matters including the risks associated with the proposed changes to the law by the UK Government which may not be enacted either in their current form or at all,” he says.
Any impairment will impact statutory profit.