SHJ is one of those companies which reports reasonable to good eps but pays lowly unfranked dividends because it is always reinvesting back in itself. Reasonably okay as the ROCE is circa 10%. One can see this in its Work in progress and unbilled disbursements which are always increasing. In fact, they swelled by a further $13m (approx. the same as their NPAT for 1HFY22) to $417m
Follow the cash is the key to understanding Shine (SHJ). In short summary this is how it panned out:
(a) We made a profit of $13m + add back $6m in non-cash depreciation = $19m
(B) We applied those profits plus an additional $13m in cash on hand to afford to do the following (that is spend $32m):
(c) Reduce payables and disbursements by $13m and
(d) Fund a build-up in WIP & unbilled disbursements of $13m and
(e) Pay our dividends of $6m
But there is a silver lining, for which I believe they have no choice other than to declare a juicy special dividend, maybe as much as $18m or approx 10c
You see, they have $26.3m in fees waiting to drop in the Ethicon case where Johnson & Johnson have no other legal avenues to defend, so it is a certainty and I’d be thinking it might drop in this half year. Plus, they will reap further fees from this matter going forward for another few years whilst they settle claims in this matter.
Overall, SHJ is developing into the best (and biggest) all round legal practices in Australia and other investment metrics might suggest this to be so.
At a SP of $1.26 I see FY22 EPS @ 16.5c(forward PE of 7.6x), the likely FY22 EV/EBIT is around 5x (good buying territory), P/BV is 0.67x, the P/NTA is just 1.05x
FY22 dividends (unfranked) of 6.35c will likely offer some kind of a return (4.96%) whilst we await for the market to wake up to this strengthening company.
I know AFL has some fans on Strawman, but for the life of me, I cannot see the comparison. Right now AFL is P/BV of 2.15 and EV/EBIT of around 13.5x
SHJ already has a significantly bigger general legal practice and is established. I’m loathe to use this example because of the final score 1-0 of thousands of years ago, but size wise, it is a bit like David v Goliath.