Shine's prices are getting to an interesting level. They do have a short report out against them, which they have responded to.

I don't think Shine will ever be an amazing investment, but as a value play there might be something here. If anyone knows how to value legal businesses with large amounts of WIP on their books...

Got an interesting piece attacking Shine's accounting here. I'm not sure what to make of it.

https://michaelwest.com.au/red-flags-abound-for-shine-justice-but-no-win-no-fee-law-firm-no-respond-nor-pwc/

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.

At long last the Ethicon class action has been decided and a big win for Shine Justice (SHJ). This will unlock substantial WIP into cash and also provide a lucrative income stream going forward when ascertaining all the individual cases.

SHJ is now a much more rounded legal practice and with an almost national footprint. Its SP has risen from $1.15 to $1.55 in a few months yet is is still trading at just 1.05x Book value and at an EV/EBIT of just 5.7x based on my FY22 forecast eps of 17c.

Is there scope for a special dividend given the Ethicon win? I hope so.

They are hard to find, but here’s one!

I refer to a well-managed, resilient, ‘all economy’ company which has a very diversified offering. Throw in the fact that you can pick it up for its NTA value of around $1.15 and you will get an eps of around 17c in FY22 with a 5.8c unfranked dividend.

Plus, management are expecting low double-digit growth in FY22 which I have assumed to be 10%.

With a SP of $1.15 a range of analysts and services have this valued between $1.27 (Morningstar) and $2.65 (SWS).

Its Shine Justice (SHJ) and it has a year of growth ahead of it as well as a likely good year cash flow wise from the Johnson & Johnson breast mesh case. The High Court has already ruled against them, but been a smart-ass big company they are playing the deferral game by applying for a rehearing.

A good prospective entrant into a SMSF where the income will be welcomed as you wait for the market to revalue this offering after the painful memory of the Slater & Gordon debacle fades – which it will.