Shine Corporate Loses Its Gloss

This story features SHINE JUSTICE LIMITED, and other companies. For more info SHARE ANALYSIS: SHJ

-No growth considered likely
-Intense competition in Qld
-Receivables increase materially
 

By Eva Brocklehurst

Shine Corporate ((SHJ)) has lost its gloss for Moelis. The company is reviewing its earnings estimates and expects to lower earnings guidance for FY16, pending finalisation of a review of work-in-progress recovery rates and provisioning.

Previous earnings guidance provided at the AGM was in the range of $52-56m, which implied growth of 15-23% versus FY15. The broker has reduced its earnings estimates by 16% for FY16 and, at $45m, this implies no growth. Underlying earnings, based on Moelis' estimates, are expected to contract 7.0% in FY16. In contrast, FY15 earnings grew by 24% and FY14 by 43%.

The company has said that market conditions over the past year in personal injury have been difficult. Intense competition for personal injury cases in Queensland has meant margins are flat, while cash conversion has been hit partly because of emerging practice cases being more cash intensive and taking longer.

Receivables have also increased materially, to $15m from $6m in FY14. Receivables over 90 days have also grown to $3m from $600,000 in the prior corresponding period. This mainly stems from the energy practice, which includes the Emanate acquisition, as this has a longer receivables cycle.

Moelis is even more disappointed that guidance was only reiterated at the AGM in late October. Moreover, the market is unlikely to take all of this with a smile, given the recent debacles and negative sentiment surrounding peer Slater & Gordon ((SGH)). One positive aspect, the broker contends, is that Shine's gearing levels were relatively low at last balance date.

The broker envisages downside risk exists to Shine from several quarters. This includes regulatory changes, which are difficult to determine in terms of timing and are influenced by political groups.

Competition for assets may also occur and this may mean higher earnings multiples are paid out to acquire suitable targets. Another issue is that stocks attributed to two directors, who hold 49.4% collectively, are now off escrow and there is uncertainty regarding future selling down of the stock.

Moelis has a Sell rating and $1.58 target. The broker expects dividends of 3.3c per share in FY16, a reduction on the 3.8c distributed in FY15.

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