Slater and Gordon Holdings – SGH.ASX

Slater & Gordon Holdings SGH.ASX has been a very profitable consolidation play for those who took the plunge a few years ago.  The media have been tracking the potential acquisition of Quindells, which has been recently confirmed by SGH in an announcement last week.  The speculated price take nearly $1bn AUD means that, if the deal proceeds there will surely be a sizeable equity raising on the cards, we suspect any acquisition price will be closer to $600m-$700m.

There are two ways of looking at this one.

1. Quindells has had a questionable history, if this deal proceeds on big multiples it might be the event that causes a re-think of the high but not stupid 22x attached to the stock at present.

2. SGH itself is trading on Market Cap to Revenue of 3x paying 1.0 to 1.5x this means there is still room for the PE arbitrage train to keep on choofing along for the time being.

On the capital raising side. This will be a big raise. The risk with a big raise is that rights issues are preferred. On  the flip side the stock has a history of using SPP’s to raise money and hasn’t done one since 2013, so it is certainly eligible to do one.

Probably worth a buy of $500 to find out.

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