Shares of embattled legal eagle Slater & Gordon Limited (ASX: SGH) soared 20% higher to $3.56 this morning following the group's full-year earnings release. Although they have since retreated to $3.30, they're still sitting pretty on a gain of 11.9%.
It's been a rough couple of months for shareholders of the embattled legal eagle with the company the subject of a number of investigations regarding its accounting policies, and those of its Professional Services Division (now known as Slater Gordon Solutions) which it controversially acquired earlier this year.
However, it seems that the market is responding positively to two pieces of news in particular:
- The company is continuing to cooperate with the Australian Securities and Investments Commission, or ASIC, and its investigation "which the company expects to be completed shortly". It said that ASIC's review process has been extensive, and no recent updates on any errors found is a good sign (although until the review is complete, there is by no means any certainty as to what the outcome will be).
- Slater & Gordon has also decided to reclassify certain balance sheet items, including 'Work in Progress" items, which have led to the recent investigations. For instance, following discussions with ASIC, it will adopt the "AASB 15 – Revenue from Contracts with Customers" accounting standard which relates to the way customer revenue is reported.
For the year ended 30 June 2015, the company reported a 27% lift in normalised revenue to $521.9 million and a 20.7% increase in earnings before interest, tax, depreciation and amortisation, or EBITDA. The EBITDA margin was 23.3%, down from 24.5% in the prior year, while the group's net profit rose 7.7% to $70.7 million.
The company ended the year with $623 million in net debt while it declared a final dividend of 5.5 cents per share, franked to 40%.
Commenting on the results, Andrew Grech, the group's Managing Director, said: "The underlying operational performance across Australia and the UK is strong and we have again delivered what we promised at both a strategic and operational level. The results are even more pleasing having regard to the intensive acquisition activity and additional scrutiny our team has had to contend with."
Elsewhere, shares of the company's rival Shine Corporate Ltd (ASX: SHJ) have fallen 2.9%, compared to a 0.8% rise for the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO), after it also announced its full-year earnings. The company reported a 30.4% increase in revenue and a 37.8% lift in normalised net profit, but that obviously wasn't enough to please investors.
Although the market's response to Slater & Gordon's results was certainly encouraging, investors should still be mindful of the risks facing the business, and the possibility of more bad news in the future. Given the market's heavy fall recently, I believe there are other great companies that are currently presenting as superior opportunities.
