The shares of Slater and Gordon (ASX:SGH) fell 17% this morning following the suspension of Quindell plc’s shares as UK’s authorities have commenced an investigation into the accounts. Earlier this year Slater and Gordon have completed the acquisition of the Professional Services Division of Quindell plc for A$1.2bn.
Slater and Gordon had to defend itself already yesterday as the AFR published an article stating that Slater and Gordon’s accounting practices were subject of an ASIC examination. The company stated these contentions were incorrect and misleading.
The investigation into Quindell’s shares will cause more headwind for the recently embattled lawyer firm. Under the Financial Services and Markets Act 200 Quindell’s historical statements during 2013 and 2014 are being investigated. Slater and Gordon has reiterated that the only difference between the accounting policies of Slater and Gordon and Quindell ‘related to historical revenue recognition which was disclosed in the Investor Presentation,’ says the company in a statement to the ASX.
Slater and Gordon continues saying that it was aware of the accounting practices and the concerns raised publicly in relation to the accounting policies of Quindell at all stages of the acquisition. The main reason why Slater and Gordon believes it has no liability to the ongoing investigations is due the fact that it only acquired the Professional Services Division (PSD) entities rather than the parent entity.
Quindell confirmed overnight that the UK’s financial regulator was now conducting a comprehensive investigation about the 2013 and 2014 accounts.
Nevertheless, SGH confirmed that it was on track to achieve guidance during this financial year and that the Quindell takeover is expected to contribute significantly to earnings in the 2016 financial year.
Shares of Slater and Gordon (SGH) have fallen more than 35% since reaching an all-time high in April. Tougher times appear to be ahead of the company as well as its shareholders after years of straightforward growth. An increasing amount of shareholders are expected to start questioning SGH’s acquisition policy as well the most recent acquisition of Quindell’s PSD of course. Unless you are looking for a short-term trading opportunity, Wise-owl recommends to avoid the company for the time being.
Author: Simon Herrmann
Jun 25, 2015
Simon is a financial analyst at independent research firm Wise-owl specialised in small-mid cap growth opportunities and ethical investment opportunities. Simon's aim is to disrupt the cliché approach to investment decision making as he believes that socially and environmentally responsible behaviour is a necessity to long-term wealth creation. Simon has a deep fundamental understanding of the global financial landscape and has compiled 300+ research reports, valuations and corporate appraisals. Simon is commonly featured in major media outlets and his research is published weekly in The Australian.