Personal injury heavyweight Slater & Gordon saw its share price drop 52 per cent overnight after the UK Government announced a shake-up in the way road accidents claims are handled.
The announcement was made as part of the Government’s Autumn Statement yesterday (25 November) in which Chancellor of the Exchequer George Osborne set out plans to remove the right to general damages for minor injuries. To compensate for the higher number of injuries in the small claims court the threshold for claims will also increase from £1,000 to £5,000.
Slater & Gordon’s share price to fell from A$1.38 to A$0.65 as a result of the announcement.
The firm issued a statement to its shareholders stating that it did “not expect there to be any impact on its FY16 performance”.
The Ministry of Justice intends to consult on the new proposals early next year. The firm said it would be involved in the consultation and would inform its shareholders as to the impact on its 2017 full-year performance.
Although listed on the Australian Securities Exchange (ASX), around 40 per cent of the firm’s global revenue is generated in the UK. During the last financial year Slater & Gordon’s UK revenue soared 47.6 per cent, from A$143.4m to A$211.6m (£98.4m). Globally the firm saw revenue increase by 27 per cent from A$411.1m to A$521.9m (£242.9m).
Slater & Gordon’s share price has taken a number of hits over the last year. In March the firm purchased insurance outsourcer Quindell’s professional services arm for around £700m. However, following the deal the FCA launched an investigation regarding an overstatement of Quindell’s profits in 2014. The investigation caused the firm’s share price to fall from A$6.13 to $5.06.
The FCA ended its investigation in order to allow the Serious Fraud Office to launch its own criminal investigation. At the time Slate & Gordon reviewed its accounting policies to “enhance the understanding of market participants” of the group’s financial results.
Slater & Gordon’s share price has now fallen 91.7 per cent from a high of A$7.85 in April.
Good timing Thomas Eggar partners! What will it do to Irwin Mitchell?
This is why the listing of law firms will not work for a long, long time. The general market simple does not understand the nuances of either the law or law firm business. It will consistently over or under react. Just watch …
Anon @1.41 PM, what are these nuances of a law firm business that make a law firm so different to a listing than any other professional services practice?
Re: Anonymous 27-Nov-2015 1:41 pm – Personally I think that the Australian Stock Market fully and accurately understands the nuances of S&G. Analysts and short-sellers have determined that S&G has a) over-borrowed; b) paid far too much for Qunidell; c) failed to properly forecast its income figures; and d) become massively exposed to changes in the UK PI market.
The continued decrease in share value over the last few months seems to reflect this.
Re: Anonymous | 27-Nov-2015 1:41 pm – Personally I think the big problem for S&G is that the market now fully understands the nuances of their business. Analysts and short-sellers seem to have concluded that S&G has a) over borrowed; b) paid far too much for Quindell; c) produced unreliable income forecasts; d) made its business too dependent on volume PI work and therefore massively exposed to UK regulatory changes.
No wonder car insurance in Britain is excessive. The SFO may have more work to do in making us all aware of how this rip off system works.