This post will be just talking about 2015’s companies. My 2016 predictions will be coming in a few days.
Let’s rip this bandaid off, shall we? Ouch!
PTM down 19.8%
SGH down 90%
TGA down 34.9%
AUB up 1%
ONT up 3.3%
Yikes! What happened?
Let’s start with the biggest epic fail:
Slater & Gordon (SGH)
June 2015 – errors were found in their books so ASIC commenced a review. Shares dropped by half.
October 2015 – CFO Wayne Brown announces his departure (red flag).
November 2015 – Management scrambles to reaffirm earnings forecasts confusing everyone about what is going on within the company.
December 2015 – Slater & Gordon no longer in the ASX100, Management mess up again, and law firm Maurice Blackburn issue a class action against them. Shares obviously tumble again to the epic lows of today (currently trading around the 70 cents mark).
What are their current financials?
ROE: 3.4%
Earnings Stability: 85.6%
Debt/Equity: 50.2%
1 year return: -90.0%
5 year return: -18.3%
Div Yield: 13.1%
What can we learn? Up until April, Slater & Gordon were cruising fairly well, reaching over $8.00 before stabilising between $7.00-$8.00 until June. I had no concerns until then. I doubt most investors did.
I didn’t look at their financials in June (I rarely care mid year). It wasn’t until my phone alerted me to the massive drop end of June that I wondered what the heck was going on. Bad management and poor reporting. The ASIC review freaked everyone out. When the CFO left in October, I knew things were bad. I got out then, losing about 50%. (Yes, I should have had a stop loss in place – isn’t hindsight wonderful).
The class action in December scared the rest of the investors away. Not many left now.
What to do?
It’s tricky. If you got out mid year, then it’s a big loss – around half your investment unless you had a stop loss in place. I can sympathise, I feel bad too. Even though no-one predicted the f*ck up of their books that spiralled the company out of control, it still sucks. It’s why I get nervous about recommending companies to others, for just this reason.
If you still hold then you might as well wait and see. You’ve currently lost your investment, it’s not like holding is going to make that much difference. They aren’t in danger of bankruptcy and the class action will take years. They may get their act together in that time, enough that you’ll recover some of your money. Plus their dividend yield looks excellent now. 😉
What about buying? Aren’t they on a super sale now? Weeeell, I don’t know. If you have spare money lying around (ha!) and you idolise Captain Risky, then sure throw a few bucks on them and see what happens over the next year. They only have to get up to $1.50 for you to double your money. It’s possible. Risky, but possible. I won’t be doing it though – burn me once, that’s all you get. Scars take too long to heal. Bye, bye, Slater & Gordon.
Thorn Group (TGA)
Thorn was trading around the $2.60 mark when I recommended it last year. It got up to a high of $3.04 at the end of May and has fallen steadily since then. They are currently at around $1.70.
How do their financials look now?
ROE: 17.3%
Earnings Stability: 87.0%
Debt/Equity: 76.0%
1 year return: -34.9%
5 year return: 1%
Div Yield: 7.5%
What to do?
If you hold, then you need to make a decision whether to take the loss or hold. If you decide to hold, you’re looking at around three years to recover and five’ish to profit, so I’d be tempted to wait and see. Shares are going to be jumpy over the next few years, but Thorn is stable and should be fine.
Is it a buy? No. Not enough upside, and debt is too high, There are better options.
Platinum Asset Management (PTM)
They were trading at around the $8.50 mark when I recommended them. That was at their high. They are at about $6.40 today. Face Palm.
Their financials:
ROE: 61.1%
Earnings Stability: 82.3%
Debt/Equity: 0.0%
1 year return: -19.7%
5 year return: 12%
Div Yield: 4.9%
What to do?
Hold. I still like PTM. They still have strong financials and the fall over the past year is mainly due to the general drop in share prices overall (overall market is down 20%). It’s a tough market at the moment for most companies, but PTM should weather it.
Buy? Sure. See if you can get some at around $6.20-$6.25’ish. They are fairly priced right now and good over the long term. Once this turbulence in the market ends they’ll perk back up nicely.
My two extras AUB & ONT
Not much to say. Considering the All Ords is down 20% and these are holding steady, I’d say that’s a win for this terrible year.
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So that’s it.
Can I just say that I feel your pain right now? I’m very nervous about putting up my 2016 recommendations in case I have another Slater & Gordon fail in the midst. If anything it’s taught me that stop losses are important even with long term investment.
The ASX100 is down 20% and I don’t see much improvement over the next year. It’s a great time to move your money into safer investments or stock up on low priced companies ready for the bounce back. Most people don’t have that patience, but market falls are the time that most people make their money – they buy low, wait for the rise, then sell in a hot market.
Stay strong and I’ll see you in a few days with my 2016 predictions.
Tracey 🙂