Summary: Proposed restrictions to road accident injury compensation claims in the UK have contributed to downgrades on Slater and Gordon, while Aristorcrat Leisure's full year results have driven positive analyst commentary. Fisher and Paykel Healthcare's move to sell products directly into US has been handled well, while ALS's rights issue hasn't excited many analysts.
Key take out: Analysts are concerned about SGH's debt levels, as well as the impact of proposed restrictions on road traffic accident injury claims in the UK. As a result, price targets have faced heavy reductions.
Key beneficiaries: General Investors. Category: Shares.
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Slater & Gordon Group (SGH)
The ambulance chasers end up in the ambulance. You may have heard in the news this week some issues surrounding compensation lawyers Slater and Gordon? Issues causing the stock to drop from just above $2 all the way to $0.595 and back to where it has now settled this afternoon at $1.26.
The issue that caused this is a proposed change by the UK Government to restrict the right of people to claim compensation for pain and suffering when it relates to soft tissue injuries in road traffic accidents. The market reacted swiftly despite SGH trying to play the impact down in their announcements. The analysts also acted swiftly.
The announcement forced all analysts to downgrade their call on group. Analysts do not fear for FY16 earnings but FY17. They also note with the level of debt on the balance sheet of SGH a material hit to earnings could see the company in significant trouble.
This level of potential risk has seen analysts take the axe to their price targets with heavy reductions. The average is currently sitting at $2.50 but with one analyst as low as $0.90. One analyst's target reduced to $1.00 from $5.31. Expect targets to bounce around as the regulatory risk will be difficult to price in as the proposed changes are debated.
• Investors are generally advised to hold Slater and Gordon Group at current levels.
Aristocrat Leisure Limited (ALL)
Shareholders of the gaming machine company would have felt like they have hit the feature over the last year with the stock up close to 50 per cent. And when the group announced the FY15 results on the November 25 the good times kept on rolling.
EBITDA was up 138.5 per cent on the prior corresponding period from $219.3 million to $523.1m. The results reflect the acquisition on VGT, strong growth in Australia and North America being the stand out.
Analysts continue with their favourable commentary anticipating more good news in the months to follow. This comes off the back of the positive language used in by management for the FY16 outlook. Management stated they expect further growth across a number of their operations.
Despite the positive commentary by a number of analysts the result has not managed to move their target prices meaningfully. The average sits at $10.10 and the current share price is not far off at $9.61 at the time of writing.
• Investors are generally advised to buy Aristocrat Leisure Limited at current levels.
Fisher & Paykel Healthcare (FPH)
The calendar year has been a kind one for the shareholders of FPH and the half yearly report released last week reflected this. Management were pleased to announce a record NPAT of $62m for the half year up 27 per cent on the prior corresponding period.
A key contributor to the Kiwi healthcare company was the transition to direct sales of its products into US hospitals as opposed to using a third party distributor. This could have been a move which could have caused some pressure but seems to have been pulled off better than anyone could have expected.
Although all analysts' commentary was positive and could not fault management a number of them believe the current and future success is already well and truly priced into at current levels. At the time of writing the share price was $7.86 which is exactly the same as the average 12 month price target. The few analysts with a sale on the stock have stated this for the reason.
• Investors are generally advised to hold Fisher and Paykel Healthcare at current levels.
ALS Limited (ALQ)
When we wrote on the global provider of analytical laboratory services group ALS at the start of August, the outlook wasn’t too rosy with analysts labelling it a hold for the time being. We move forward four months and it is downgrades all round from analysts after the release of first half FY16 results.
The company announced a rights issue for $200m at $3.35 on top of further declining earnings. The rights issue did not excite too many of the analysts. One even called the issue a knee jerk reaction to the declining earnings. The rights issue will be used to repair the balance sheet and further fund the Life Sciences division which is becoming more and more important to offset the exposure to resources.
In August the average 12 month price target was in the mid $5 level. After the report analysts have revised their numbers and the average target has come down to $4.10. Downgrades were in abundance and the consensus view now on ALS is a sell despite the current share price being well below the price target at $3.68 at the time of writing.
• Investors are generally advised to sell ALS Limited at current levels.