The legal sector has been an exciting place to invest in over the last two years. Shareholders in Australia's two largest listed legal companies have enjoyed returns well above the S&P/ASX 200 (ASX:XJO) (Index:^AXJO) in that time. Slater & Gordon Limited (ASX: SGH) and Shine Corporate Ltd (ASX: SHJ) have recently experienced a pull-back in their share prices and investors may wonder if now is a good buying opportunity. Lets have a look at both companies in a little more detail.
Slater & Gordon Limited
Slater & Gordon is Australia's largest listed consumer law firm with a market capitalisation of around $2.2 billion. It has excellent brand recognition and widespread presence throughout Australia. Slater & Gordon has achieved strong growth through acquisitions and has most recently finalised the company's largest ever acquisition of Quindell's professional services division in the UK.
While this strategy has been successful in the past, the market has been sceptical about the size and execution of the deal and the share price has fallen from a high of $8.07 to below the entitlement offer price of $6.37. The acquisition is expected to be in excess of 30% earnings per share accretive from fiscal 2016 if executed successfully and will also provide Slater & Gordon with instant scale in the UK by increasing its market share from 5% to 12%.
The company has a strong history of increasing revenues and was able to deliver a 42% increase in earnings in its latest results. Slater & Gordon shares looks attractively priced currently and offer significant upside potential if management can deliver on the recent acquisition.
Shine Corporate Ltd
Shine Corporate was listed in 2013 and has doubled in value since listing. With a market capitalisation of around $485 million, Shine is slowly gaining more attention from the broader market. The company focuses on personal injury compensation but has also been diversifying into emerging practice legal services.
Shine was able to increase revenues by 29% in the first half of FY15 through strong organic growth and contributions from several acquisitions. It also has been investing in a significant marketing strategy and overhead expense cost control program.
Despite no change to its underlying growth prospects or major announcements from Shine, the share price has fallen over 15% since reaching its 52-week high of $3.45 in March. Shine is trading on a price-to-earnings ratio of around 16 which is good value considering the company has a pipeline of possible acquisitions and has proven it can grow earnings consistently.
Foolish takeaway
Both companies provide investors with an opportunity to gain exposure to the growing consumer legal industry which has potential for further consolidation. For those investors who are more risk tolerant, I think Slater & Gordon may offer better upside potential should management successfully execute the latest acquisition. Shine Corporate has a lower risk profile but has a positive growth outlook which should see the share price rise steadily over time.
