Litigation Capital Manag... Share Discussion Threads

[serapuff] 14/3/2023 15:16

Hi, what I took from the presentation/Q&A - a lot of the questions I pre-submitted were answered-

- H1 commitments (100M) is the highest ever, and the trend is expected to continue given the new hires and the macroeconomic environment. What I was surprised at (which I have asked a question on) is the dropping applications. I suspect this is due to Nick/Matthew leaving although management won't say so. But with the recent new hires, I am sure the trend will reverse - the resumes of the recent hires are quite impressive.

- What I got confused though was that their # of applications was dropping, but they have record commitments, so not sure if underwriting standards are falling (although they qualified more complex cases)

- They are very cost efficient compared to Burford/Omni (OPEX is c.15M + 7 M interest), and comparing it with the AUM of Burford/Omni & new commitments they are also more efficient

- The rising returns when cases are delayed don't apply to Australian class actions. That's why the recent return on Australia class action was quite poor. I asked what % of investments are Australia class actions (although haven't got a reply), but if I have to guess I'll say around 15-20% of their portfolio

- I think one key thing to observe is that their current contract assets is now at 31M (vs direct deployment of 120M) - so they are expecting around 25% of their cases to settle in the next one year - including 8M from australia class action. So on the balance sheet investments, for the next one year we may see around another 23M settle, which maybe~60-70M of revenue on the balance sheet investments side (just gut feel) on top of the 14M for the class action.

They don't show the current assets for the Funds, so we don't know how much revenue will come from there, but probably quite significant since they have quite a good performance fee of 30-35%.

So CY2023 should be a good year if things go according to plan.

- They had an arbitration loss. Didn't like that.
- They didn't seem concerned about key man risk (I asked that as I felt it was a significant risk facing the company)

- they mentioned they were looking at 0.5B (I think USD although not mentioned) fund 3 in 12-18 months, that's quite exciting!

- management remain confident that their legacy direct balance sheet investments will have returns more similar to their historical returns (and not so much like the class action). They don't seem concerned about the delays due to COVID.

- the macroeconomic conditions remain very conducive for new business/commitments
-> the banking crisis will likely lead to more lawsuits

- so overall, possibly good CY2023 settlements, very strong commitments, a bit concerned over UW standards with low applications but record high applications, strong hires/team, poor realizations in last 6 months resulting in poor financial results, continued operational efficiency, need to see more evidence of case settlements to justify management's faith that there's nothing to be worried about COVID delay (although we are starting to see some).

Gideon

[daz] 14/3/2023 14:19

Having checked the slide, there is AUD$65m committed to cases outstanding for 49 months or more, which is well above the 36 - 42 months expected.
I wish the slide would explicitly state the number of cases but this seems to be covered by the following slide, which lists 10 including one write-off and at an average of $6.5m per case, that seems to be about right.

The slide list 6 cases either awaiting judgement or with final hearings scheduled, so I may be worrying unduly,

[maddox] 14/3/2023 14:03

There are only three potential outcomes to a case, settle, win or lose in court - and every case will conclude - the huge uncertainty is over what timeframe. This will cause the results to vary quite dramatically from period to period, especially as the case-size increases.

[warno01] 14/3/2023 13:27

The way I read it is that whilst case resolution times have lengthened, like all litigaation funders, increased duration also is covered by increased return built into their agreements often due to interest rates applied on judgements.

Whilst the last 12 months is challenging, the post interim report results are promising with now a total of US$25m booked in yearly revenue.

2023 has a lot of potential now. 146A$m of deployments now at 25 months and beyond, 110m at 37 months+ on the balance sheet funding basis. 124m at 25 months plus on the fund basis. 80% IRR on those sums becomes very healthy - call it A$200m likely to be decided in the next 18 months. Only upside for me.

[daz] 14/3/2023 12:44

I asked a question on whether any of the long running cases should be written off, as there are quite a number open for 48 months or more. Unfortunately it wasn't answered, which is disappointing to say the least.
I have a suspicion that the average IRR of cases is being inflated because cases not resolved but which perhaps should be written off are not included.
I may have got this wrong but without the question being answered you have to be cautious.

[makinbuks] 14/3/2023 12:01

I didn't like Maloney's answer to whether the performance fee of A$3.2m on Carilion could be clawed back. As always he talked round it a lot but essentially so far as I could tell said yes it could

[nchanning] 14/3/2023 09:15

Broke : Looking at 6 month/ 1 year returns from lumpy litigation finance providers and applying a multipleWoke: Looking at long term growth in book value per share and applying an appropriate multiple of book value , whilst remaining cognisant that this may improve dramatically as a result of fees from the fund management business

[robsy2] 14/3/2023 08:54

Indeed Riverman.

[riverman77] 14/3/2023 08:30

Not surprised at all by these results - once again any case wins completely swamped by costs. Will need a huge step up in case wins before they start generating any decent cashflow.

[spectoacc] 14/3/2023 08:25

The fund management side seems more interesting at least. But overall, if resolution times are taking longer, then capital is being committed for longer, costs are potentially higher, & returns are diluted over a longer timeframe. Hard to tell if we're at the worst of that and improving from here, or not.

[jonwig] 14/3/2023 08:19

Indeed - not at all impressed. And a mountain to climb with all these high and rising expenses.

[robsy2] 14/3/2023 08:18

Let’s see what they have to say in the presentation.

[robsy2] 14/3/2023 08:06

On the face of it a pretty awful set of results.The costs are there but the income is delayed.

[luweiluwei] 09/3/2023 21:06

We should be seeing news of cases finishing on average every two weeks for the rest of the year.

[jackson83] 09/3/2023 17:20

maybe we will see 90p on results day ?

[blueball] 09/3/2023 13:05

Stay long.

[jonwig] 09/3/2023 13:00

Gross profit comes after "Litigation service expense", and other expenses seem to be partly fixed. With LIT last year it was (AU$ '000):

Lit Revenue.... 47,350
Lit expense....(16,340)
Gross Pft...... 31,060
Other exp......(20,380)

Have I got the breakdown right?

[riverman77] 09/3/2023 12:56

I'm not saying they're misleading anyone and I hold some of these names myself as expect to see some big case wins starting to come through. But they do make a big point of highlighting their historic IRRs on cases, but tend to keep quiet about their much lower ROEs which is ultimately the key metric that will drive shareholder returns. I'm sure there are some investors who get very excited about the IRRs and just need to be aware of this.

[maddox] 09/3/2023 12:45

Yes, but they don't present the return on a single case or historic case portfolio as anything other than the performance at the case level. They certainly do not mislead investors that a 30% IRR equates to 30% ROE - so I fail to understand why this point needs to be made.

[riverman77] 09/3/2023 12:14

And the other thing to remember is these are gross profits - all the litigation companies like to mention their very strong case returns, but once accounting for all their staff and other costs they are barely breaking even (although things should improve on that front as more case wins start to come through). So when the likes of Burford keep talking about historic 30% IRR that definitely does not translate to 30% return on equity.

[makinbuks] 09/3/2023 11:54

Two years would be short, a couple of years ago I think they quoted 28 months but through the pandemic it lengthened significantly.

[daz] 09/3/2023 11:51

Agree Riverman, a 70% return on a case described as 'mature' must be a couple of years old at least.
While any success is welcome, I suspect LIT may have compromised a little on the settlement just to get the case closed.

[makinbuks] 09/3/2023 11:22

Very welcome news of some wins recently. Next results are going to be an interesting read and I hope we get some webinar presentations to back them up. I'm still wondering how the corporate structure is looking with the move to the UK and the sacking of the main UK director. Been very quiet on that front

[riverman77] 09/3/2023 11:03

While any win is good, returns don't seem to be as good as what they've historically delivered. Not sure how long this has been running, but they mention delays so on an IRR basis probably fairly low.

[walter walcarpets] 09/3/2023 09:46

jonwig21 Dec '18 - 13:38 - 1 of 1540
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jonwig posting in 2018 - new to you???