Litigation Capital Manag... Share Discussion Threads

[74tom] 18/7/2023 14:51

The book is just starting to look more positive with some 25 & 50k block buys. Part of me thinks that someone wants to build a major stake here so is deliberately sitting on the sell side & accumulating any loose shares. It's certainly baffling that anyone would be a seller in these circumstances, however there are no doubt any number of ways to hold a share price back in the short term, not so much once a couple of big buyers get going.

My thoughts having distilled the RNS a bit more are that this could well driven by the board rather than Patrick, obviously we'll never know. Also difficult to be sure whether BV or FV accounting makes LIT more vulnerable to a bidder, my gut would say BV because any PE house with a decent analyst could work out a pro forma fair value and see the obvious opportunity?

Whatever, I agree with someuwin's chart hypothesis - surely we are about to leave double figures behind once and for all.

[maddox] 18/7/2023 14:41

LIT is achieving some fantastic wins - and trading at a ridiculously low valuation.

However, whilst I can appreciate the Board's positive intentions - I too doubt that adopting fair value accounting will help the share price. Based on my close following, Burford fair-value accounting clearly hasn't helped:

>> It adds huge complexity to the results by putting hypothetical figures through the P&L. Including a discount rate adds even more complexity and interest rate volatility;

>> The legal case fair valuations put into the books are only a fraction of the cases final value at settlement/judgement; and

>> Investors don't believe the figures and question what are perceived to be subjective management valuations in any case.

All fair value will do is to obscure the excellent performance that LIT is delivering. I'm please that they will be publishing two sets of accounts so that shareholders can directly compare fair value accounting with 'realised case value accounting'.

It might also be useful to complete the picture by including a memorandum statement of the anticipated terminal case values of the inflight case portfolio - so we can see what proportion is assessed as fair-value and put through the P&L.

I hope that following the next results LIT's Board will survey their stakeholders to see whether the fair value experiment has objectively achieved the desired outcome - and then make a final decision. Because, it's a hell of a lot more work and complexity if it doesn't.

[hunter154] 18/7/2023 14:24

I agree - one of my favourite companies atm.

I saw the last web presentation by CEO. They are going to launch fund 3 soon…..the balance sheet investments are now slowly crystallising which will provide continuous positive news.
Fund 1 cases are probably not far behind.

Covid really slowed them down as courts were not functioning properly but we are slowly getting back to normality.

The NAV uplift in Sept will be interesting after the accounting change ( im not a fan of this but hey-ho).

[someuwin] 18/7/2023 14:18

I think LIT is now, where BUR was at the start of 2016. Beginning a major, multi year growth phase which could see a similar 10 x multi-bag to $bn+ levels.

[hunter154] 18/7/2023 14:18

I am surprised too.
The case win (Indiana Res)should be announced in the morning so hopefully that will help USD15m take.
The market doesn’t seem to get the potential of this incredible small cap.

[jackson83] 18/7/2023 13:41

I will short 100k b4 end of play today


its game , set , match BUT LIT IS CLUELESS LOL


Opportunity to SELL

[kpo115] 18/7/2023 13:00

I am totally convinced of this share's future prospects. I shall therefore be buying 100,000 before end of play tonight!

[riverman77] 18/7/2023 10:07

Very muted reaction, thought this might shoot up 20% or more. Opportunity to buy more before market cottons on to the value here perhaps?

[nchanning] 18/7/2023 10:01

Quite right LB , wish they had included some more detail about the actual results instead of dedicating the whole RNS to new marketing strategies for the shares .

[l2b] 18/7/2023 09:43

No RNS on IDA but RNS on divies and FV accounting.
IMO looks like mgt caved to Short Termers hoping for a couple of bags.

I can make my peace with the divies (excess cash spiel and insto appeal) though some UK folks may be surprised on the impact to share price momentum for Aussie divies stocks (let's see who wins between instos and Aussie boomers lol).

But the MTM accounting is just nonsense.
It's an internal subjective marking system.
Imagine relying on asking staff whether they think they're good at their job lol!
And it's not like the cashflow statement is a backstop as it mixes future investment with current cash receipts so is completely unhelpful in assessing performance.
The current P&L cash accounting was useful and reliable.
Cash is reality, Accounting is an opinion.

But the STers get a bump to BV so it looks good on price to book valuations.
If you are reliant on share price momentum from this you are relying on idiots being on the register.
IMO it actually holds it back for genuine long termers who focus on FCF generation. New investors will be put off as they say they can't understand nor see/trust the underlying results (and cite BUR as an example).

Anyway, hopefully today's bump is the cash return on IDA investment....more will follow. Hopefully performance is visible.

This has genuine multiple bag potential - 30-50x on a 5-10 year time horizon IMO - revenue growth and operational leverage and reinvestment at high ROIC are powerful combos.

P.S. I need to check EIP impact later but keep that in mind (incentives and all that)

[someuwin] 18/7/2023 09:30

Added again today - now one of my biggest holdings.

[johnwig] 18/7/2023 08:33

Well I never,fancy that! You called it right,74tom. I'm not quite sure I like the dividend payment quite yet but I do trust Moloney's judgment. In my view he is a superb CEO. He will drive LIT onwards and upwards, which is why I and my family are very fully invested in LIT.

PS It looks like the bad-breath brigade are active today. I wish I could understand what they are up to. It's a very strange buy/sell action today.

[74tom] 18/7/2023 08:21

Tremendous news today, the full impact will be seen when they report the side by side comparison in September. @citywolf1, I’m going to update my forecasts this morning and will post my estimates later on.

Given the very significant leverage of funds 1 & 2 vs the current market cap (4x!) there is real potential for a transformational re-rating over the next couple of periods.

The share price is still being controlled at present, with some entity selling 320k in the opening auction to prevent an open at >85p & following up by providing supply on the sell side order book to hold the price.

Now we know why - somebody clearly wants to build a stake pre this switch being fully recognised by the market, so they are holding the price down to prevent it running away. Once momentum kicks in this will take some stopping.

In my opinion there is currently nothing in the share price for the fund management arm… quite extraordinarily & a result of Covid delays + cost accounting disguising the huge underlying progress. This has to be one of the best value plays on the global market right now.

[74tom] 18/7/2023 07:13

Ha, I called it spot on with the shift to fair value accounting. LIT will now be valued in line with peers, I suspect a major re-rating is on the cards here, particularly given the year end cash balance, prospective dividend & outlook. Boom.

[robsy2] 18/7/2023 07:10

Wow! This is the day we have been waiting for.

[someuwin] 18/7/2023 07:03

RNS Number : 2935G

Litigation Capital Management Ltd

18 July 2023

Litigation Capital Management Limited

("LCM" or the "Company")

Transition to Fair Value Accounting and Dividend Payment

Litigation Capital Management Limited (AIM:LIT), a leading alternative asset manager of disputes financing solutions, provides a market update for the twelve month period to 30 June 2023 ("FY2023").

Following a number of recent resolutions in the second half of FY23, the result for the full year will deliver LCM's strongest performance to date by a significant margin. The Company is well positioned for the year ahead with in excess of A$80m in cash held at period end. We will provide further details with the release of our year end results.

The Company wishes to update the market on two important developments.

Reporting update - Transition to Fair Value Accounting

The evolution of the Company's business over the past two years, transitioning away from the legacy direct investments business model and towards positioning LCM as an Alternative Asset Manager, necessitated the need to review the Company's accounting policies. In consultation with our advisers, the Board has taken the important decision to transition to Fair Value accounting. This will put LCM in line with industry peers in both accounting policy and fair value framework. In doing so, we expect to announce our audited results for FY2023 under both the existing accounting policies as well as the newly adopted Fair Value accounting. This will provide our investors with better transparency on the impact of the transition.

Dividend

Following the strong financial performance of the business during FY2023, the Board has decided to pay a dividend of 2.25p per ordinary share payable to Shareholders. The dividend timetable for this distribution will be contained within the FY2023 results announcement.

Patrick Moloney, Chief Executive Officer, commented: "We are pleased with the performance of the business over the past 12 months, particularly as we begin to see the benefits of moving to a fund management business model. Our strong financial performance is the best in LCM's history and reflected in the Board's decision to pay a dividend."

Jonathan Moulds, Chair, commented: "The transition to Fair Value accounting is a significant milestone for LCM. We believe this decision just taken by the Board should be welcomed by investors. Given the strong performance, the underlying pipeline and cash reserves LCM has built up, it is an appropriate time to pay this dividend. The Board will continue to keep under review the optimal way to return value to shareholders, balancing our future investment opportunities with the importance of rewarding our shareholders."

[l2b] 18/7/2023 06:08

Results are in!!
LCM to receive US$15m (~A$22m) gross for IDA claim (with interest accruing).
Expect RNS today - will indicate if Direct or 3PTY model.
If Direct then net amount almost covers total OPEX for the year on this claim - and only a couple weeks in.

Enforcement with Tanzania starts now.
A bit of chatter about whether Tanzania will pay up but LCM cover that as part of their assessment - all part of the World Bank so Tanzania will have to take that into account.
Interests continues to accrue.

Great result and good start to the year.

Congrats to IDA SHs too - got the full whack!

Announcement:
cdn-api.markitdigital.com/apiman-gateway/ASX/asx-research/1.0/file/2924-02687624-6A1158735?access_token=83ff96335c2d45a094df02a206a39ff4

[jackson83] 17/7/2023 23:39

Share price action lol ...

SHARE PRICE seems to have held up well after the large PUMP ! NOT SO LONG AGO .. WE ALL EXITED and now waiting for 60p's to jump on back in


ANYONE notice MB shorting this Recently ? I did


happy Tuesdays as we wait for some life changing NEWS lol



60p or 70p's ?

[citywolf1] 17/7/2023 14:07

Yes I think that is correct the cash needs to be available once committed, so you can either have it sitting on balance sheet or available through a facility. I'm not certain if this always applies to 100% of the commitment. I imagine in most cases it is fairly obvious that a certain % of the commitment will not be required for the first x months or similar, so perhaps that is built in.

Either way there is a cost to having this latent cash. It all comes back to the same point about how you fund the cash requirements of the business and what is the split between debt/equity. Ultimately it will make sense to have some form of debt, it's really about how much and in what form. Facilities will give more flex but have a higher cost vs bonds/prefs etc.

[makinbuks] 17/7/2023 13:09

On the point of the need for loan facilities, isn't it the case that, at the point of commitment they need to have funds available in the form of cash or undrawn facilities. If cash flow is positive in the period between commitment and deployment the facilities may prove superfluous but since cases can be lost or delayed they are still required to be in place

[citywolf1] 17/7/2023 12:40

While we wait for the market update would be interested to hear expectations for the year ahead. I'm struggling to see how the next couple of years can be anything other than barnstorming.

In my model I have assumed A$65m of invested cost is realised in FY24. IMV this is a conservative assumption looking at the capital deployed and its maturity profile (p17 of HY pres). There was $95m in the ground as of Feb that was more than 3 years old (o/w $65m was more than 4 years old). Some of this has been realised in HY but a further $25m was over 2 years old which will have rolled forward. Plus there was a further $27m of capital committed but not yet invested in this same group of cases. So essentially during the course of this year we probably have c.$130m or so in the ground that is well over 3 years old - making an assumption of $65m realising quite conservative imv.

If we assume an average return of 1.5x, slightly below historical perf despite the unusually aged cases (so again, conservative), then that means gross profit of $97m. We then need to think about any fund performance fees. I think we could assume a direct/coinvest split of $43m/$22m (there was $124m of third party fund capital over 2 years at HY), which at 35% carry would translate into performance fees of c. $30m. That would leave us with $127m of Gross profit and c. $100m of pre-tax profit.

This could easily be much higher given conservative assumptions on amount realised and multiple (vs ages of cases). FY25 could easily see that bump another 50%+ given the amount of capital we've been putting in the ground. Interested to hear other thoughts.

[74tom] 17/7/2023 10:28

That's a very good point on grossing the fund up rather than taking a proportion of $150m @citywolf1, I'll adjust my calcs. It's good news too as it means they had more capital deployed at 31/12 than I previously thought; $50m * 0.6 = $30m, of which A$6.7m / $4.5m settled in the first half of 2023, returning capital of A$53.1m / $35m of capital.

Yep, I think the timing of deployments vs new fund raises is underappreciated. Raising too much too soon puts pressure on capital commitments & I suspect is the reason behind OBL's inferior case success rate & ROIC metrics; they had to invest in more cases simply because if they didn't then the fund(s) wouldn't be committed in time.

I think a dividend is important due to the fact it's symbolises they are back in a position of financial strength, it doesn't need to be more than 1/2p and would be well covered should they report PAT of >A$50m in FY24. As you say it would attract UK income investors and set LIT apart from MANO.

Very positive to see this case appears to have been settled;