Slater & Gordon Ltd Rockets 50% Higher on Debt Purchase

It finally happened. Beaten-down legal firm Slater & Gordon Ltd [ASX:SGH] made its first significant stock market rebound today.

Year-to-date, SGH has fallen 60.4%. But, this morning, existing investors received a glimmer of hope as the stock rocketed up 57.3%, to a high of 14 cents.

What happened to Slater & Gordon?

This morning, SGH released a market update about their capital structure. The law firm has been having confidential discussions with its lenders regarding the stabilisation of its capital structure.

The media has speculated that SGH’s lenders would let the company go bust.

But it seems SGH will continue to have its debt facility — just not from any of the Big Four banks. Instead, more than 94% of SGH’s debt has been bought by secondary debt buyers.

The new lenders have ensured SGH that they will restructure their debt and stabilise the company.

What now for SGH?

Will SGH continue to rocket up? Maybe. Another positive announcement stating the company is on track to record a profit will likely cause shares to jump again. But how likely is it?

SGH’s situation still isn’t great. Big lenders have deserted them, and they still remain unprofitable. Their glory days are long behind them.

If you intend to buy the stock, know that you’re not investing, you’re speculating. Sure, the stock could rocket up again, but it’s a long shot. The stock could easily fall back down if the company cannot bring net income back into the black.


Härje Ronngard,

Junior Analyst, Money Morning

PS: It’s not always easy to find growth among billion-dollar stocks. Unless they can significantly increase earnings, you’d be lucky to get double-digit returns. That’s why some investors prefer the smaller end of the market.

Small-cap stocks are a riskier investment. There is no running away from it. But they can potentially grow earnings 10-fold in a short space of time.

Small-cap specialist Sam Volkering has been on the other end of small-caps running up 1,000% or more.

So far in 2017, Sam hasn’t recommended a losing stock yet. In his advisory service, Australian Small-Cap Investigator, his top three active investments are up 304.57%, 466.04% and 1,624.49%.

To find out more, click here.

Money Morning Australia