Small Caps | Apr 27 2016
This story features SHINE JUSTICE LIMITED, and other companies. For more info SHARE ANALYSIS: SHJ
-Major class action settled
-52% appreciation in April
-May take share from SGH
By Eva Brocklehurst
Lawyer group Shine Corporate ((SHJ)) has sparkled anew over recent weeks, enjoying a sharp surge in its share price in April. The rally was in the wake of news the company had reached an agreement to settle a major class action.
The stock has gone full circle for Moelis in the first quarter of 2016. It held few promises early in year, with intense competition in personal injury and more lengthy cases affecting cash flow. Back then the broker had a Sell rating.
This was upgraded to Buy in March, following news the company, along with case partner Maurice Blackburn, had reached a conditional agreement with Johnson & Johnson and DePuy International to settle a $250m class action. Positive cash inflow of $8m as a result of the settlement is expected in the first half of FY17.
Additional claimants joining the action may also add to cash flow but the broker does not allow for this in forecasts as yet. Moelis also observes the company's board and management purchased stock during the trading window after the first half results.
At any rate, the stock has now rallied hard, culminating in a 52% appreciation in April. Hence, observing a breather is required, the broker has reverted to a Hold rating. Target price is $1.42. Moelis envisages few catalysts ahead of the August results, when it suggests investors reassess the outlook.
Morgans, which also has a Hold rating, had claimed it may take time for investor faith to be restored in the stock, after the first half results flagged provisions and a write down in the core business. The speed of the turnaround in the wake of the settlement developments suggests this process is well under way.
The second half is typically stronger for the company, as cases are settled in May and June by insurers in order to get the liabilities off their books before June 30. Reactivation of the dividend in the second half is therefore a probability, Moelis maintains.
The broker also suspects Shine Corporate is well placed to take market share from its competitor Slater & Gordon ((SGH)), which has been weakened by its problems in the UK and negative media publicity. Moelis believes Shine Corporate may benefit from attracting high quality fee earnings from Slater & Gordon.
See also, Shine Corporate Loses Its Gloss on January 20 2016.
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