Stock Quickie – SHJ:ASX

How did we get here?

I was looking for functional businesses (positive RoE) trading under book value. They showed up on the search and I thought I’d look into them more.

What do they do?

They used to “Shine a light on injustice and make the world a better place one client at a time” (their vision statement c.2014), now they aim “To be a leading provider of legal and specialist resolution services in Australia and internationally”. They are a legal services company, growth seems to be primarily through acquisition. 

Weighing machine

RoE of between 8-18%, along with profit margin (between 8-19%) that have both been decreasing for the last few years. Good debt ratio that’s been managed between 20-28% for the last few years. Really low growth (~2.5%) with a high dividend yield (>6%). Extremely high insider ownership (~50%, $60M in shares), with some recent buying activity. I’d classify this as a “value dividend company”.

Have managed to grow sales and book value consistently and slowly for the past 10 years. 

Voting machine

They are incredibly unpopular, currently trading at a 5.5xPE, their historical low. Before this PE has fluctuated between 19 and 6.5x.

Other options

IPH, QIP

Worth looking further?

The extremely low valuation is compelling. Growth is minimal, but a 6% dividend on ~0.6x Book Value is interesting for a company that is functional and cash flow generative, even if it’s growth isn’t very interesting.