Litigation Capital Manag... Share Discussion Threads

[iq151] 21/9/2023 22:31

It's one hell of a long address but it's worth looking at!

[macc1] 21/9/2023 15:25

Here's an interview just released with CEO Patrick Moloney:

[someuwin] 21/9/2023 13:55

A robust outlook makes this legal stock a buy

A cash-rich provider of litigation financing has reported record results and could deliver another year of growth

September 19, 2023
By Simon Thompson

* Net profit up 145 per cent to record A$21.8mn (£11.3mn)
* EPS of 29.5¢ (15.4p)
* NAV up 27 per cent to A$124.3mn
* 2.25p a share final dividend declared

Litigation Capital Management (LIT:117p), a provider of litigation financing, has reported record results buoyed by settlements from its directly held portfolio as well as bumper fees earned from third-party funds.

The performance of both the group and the fund interests made for a good read. The third-party funds delivered A$70.2mn (£36.5mn) of post-tax profit and a hefty $24.6mn of performance fees for LCM, which receives 25 per cent of profit on each fund investment over a soft hurdle rate of 8 per cent. The group also earns an outperformance return fee of 35 per cent over an internal rate of return (IRR) of 20 per cent, so providing an attractive income stream to complement realisations from its own directly held portfolio.

Over the past three years, LCM has delivered a cumulative return on invested capital (RoIC) of 208 per cent and internal rate of return (IRR) of 76 per cent, a key reason why outside investors want a slice of the action. Earlier this year, the group’s second Global Alternative Returns Fund (GARF) raised A$291mn of commitments. The outlook for deployment of the capital is increasingly positive.

Strong trading outlook

Chief executive Patrick Maloney predicts a significant rise in the number of appointments of external administrators and liquidators in insolvency, which will translate into increased litigation funding applications in the future. That is of particular benefit to LCM given its long history of funding disputes arising from insolvency and restructuring.

Maloney also highlights a tightening and contraction of the competitive landscape in the litigation finance industry across several markets, including the UK, US and Canada. Having built LCM's expertise and capacity in the London market, as well as having access to capital through its funds management business, the well-funded group is well-placed to capitalise on tighter industry conditions.

In addition, Maloney pointed out that LCM is “seeing more opportunities in the market and expects to materially achieve commitments in the second fund”. This will position LCM well for launching its third fund, aiming to exploit the high-quality investment opportunities that underpin generations of value and cash to both fund investors and LCM’s shareholders. Furthermore, as the group continues to grow, the operational leverage of the business means that it should deliver even greater profitability and cash generation given that higher activity levels will not need to be matched with proportionate increases in overall costs.

It’s a positive narrative and one well-supported by a raft of successful case settlements in the past year that led to bumper profit for both third-party fund investors and LCM shareholders. It also explains why the board has announced a A$10mn share buyback programme alongside a 2.25p-a-share final dividend, and is planning a fixed-income investor roadshow to attract investors for a London-listed sterling retail bond to take advantage of investment opportunities.

Re-rating set to continue

The news has been well-received with LCM’s share price hitting a 12-month high around 121p post results, up from 87p when I last suggested buying over the summer (‘Litigation funders LCM and RBG digest court ruling, 27 July 2023).

House broker Investec is working on new forecasts to take into account the group’s transition to IFRS-9 fair-value accounting, but analysts had previously forecast a 66 per cent rise in adjusted pre-tax profit of A$47.7mn. Trading on a 12-month trailing price/earnings (PE) ratio of 7.5, offering a 2 per cent dividend yield and an delivering eye-catching return on invested capital, the shares remain a buy."

[hunter154] 20/9/2023 14:04

You are deluded my friend.

Doesn't appear that you understand markets.
LCM has 120m shares o/s . We are too small for the bigger institutions to get involved as it will not move the dial.

[luweiluwei] 20/9/2023 14:00

It's just the reality of modern markets.

Doesn't matter. 20-30% cagr until that time comes at the low valuation it is today is one of the best possible investments in the current market.

[hunter154] 20/9/2023 13:38

The book value is currently £95m. So you think the business has to earn (and retain)£405m before the bigger Institutions will buy? Makes no sense.

[nchanning] 20/9/2023 13:09

Think Lu is right that growth in LIT's share price will track growth in book value until LIT reaches the new level at which a broad range of institutions would be allowed to invest in small caps which is now 500m or maybe even higher for something as esoteric and risky (at least in perception ) as LIT . That's just the reality of the UK small caps market now . That should still mean compounding at 20-30% annually until the institutions push LIT to a big premium to book value

[hunter154] 20/9/2023 12:21

Retail investor meet company. CEO, CFO and Chairman will be there.
They will run through the FY23 results + Q&A

Email the below to request attendance

[e-mail]

[someuwin] 20/9/2023 12:18

What event is that Hunter?

[hunter154] 20/9/2023 11:52

I just got my email invite re investor update on 27/9/23 .
Hopefully a few of the posters are there on the day to say hello to.

[solarno lopez] 20/9/2023 11:18

still climbing

[someuwin] 20/9/2023 10:41

I've said it before, and I'll say it again: I think, at just £130m, 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.

[greenknight1] 20/9/2023 09:38

No rerate until the shares have gone up 350 percent to reach 500mn market cap? What are you talking about? Additionally I have been in and watching several small caps which have increased in value significantly. Guess it depends on your definition of a rerate.

[luweiluwei] 20/9/2023 09:09

A rerate may be far away. I think this won't happen until the market cap goes >500M.
Unless overall markets improve and there is an overall trend of money going into micro/small/mid cap companies again. Timeline on that is an unknown though.

Until a rerate happens LIT can take advantage with buybacks. Fortunately they're one of those rare companies that realise this.
Burford keeps saying they're undervalued too, but no buybacks get announced.

[boozey] 20/9/2023 04:07

Luweiluwei, agree LIT is a small company that is relatively illiquid. The upside of this is that if an institution or two wants to buy into the stock then any amount of buying in size will move the price northwards. In such a scenario the re-rating could happen relatively quickly.

[l2b] 19/9/2023 22:01

Hunter154 - here's the Winshear announcement:- winshear.ca/news/winshear-gold/

"the Company and Tanzania have suspended arbitration proceedings and have reached a conditional settlement agreement. There is no guarantee that the conditional settlement agreement will be concluded"

The full hearing is actually on YT - hilarious viewing of incompetence - they've probably learned their lesson from IDA and are settling before case decision. 

[luweiluwei] 19/9/2023 19:36

The earnings make this look like a potential 25%+ growing (assets, aum and profit resulting from it) company at 7-8 p/e. With shareholders in their throughts too.

Seems cheap, but it's a micro cap with not much liquidity. Which these days gets a massive valuation penalty.
So rerate could take a long time.

Hope they continue to get ample cash flows with courts funtioning better, to get fund III going in 2024.

[maddox] 19/9/2023 16:05

Investors Chronicle's Simon Thompson re-tips LIT as a BUY with the re-rating set to continue. 'Trading on a 12-month trailing price/earnings (PE) ratio of 7.5, offering a 2 per cent dividend yield and an delivering eye-catching return on invested capital, the shares remain a buy.'



A couple of points he highlights are:

aa) A predicted significant rise in the number of insolvencies requiring litigation funding [a particular speciality of LIT].

bb) A slackening in competitive pressures [due to unquoted Lit Fin funders struggling to raise cash].

cc) LIT being very well funded and looking to raise another fund (III).

[my additions]

[maddox] 19/9/2023 14:05

Couple of points from the IMC pressy:

aa) Share buy-back: Yes, shareholders can interpret the share buy-back decision as that the Board is of the view that LCM is currently undervalued by the public market and that this is a prudent allocation of the company's capital.

bb) Immediate Outlook: prospects look very positive:

Direct Investments - 4 have received favourable judgements that are subject to appeal and 1 further case has had a final hearing and is awaiting an award.

Fund 1: 4 investments have received favourable judgements or awards that are subject to challenge and 3 further cases have had a final hearing and are awaiting awards.

So, that bunch should generate plenty of positive news flow.

[hunter154] 19/9/2023 13:43

Thanks l2b; great intel- where did you get the notification?

[l2b] 19/9/2023 12:20

Good results, in line with my expectations.
Good to see LTD ROIC 1.78x & trailing 3-year ROIC still >2x (plus 3PTY leverage) and commitments now over $500m with talk of Fund III starting (investment for the future).
BB of undervalued shares and bond issuance shows that management understands capital allocation and SH value optimisation.
Analysts and value guys will start to wake up on the value here.

Also, side note to IDA, Winsheer Gold also have a dispute with Tanzania going through ICSID and today ICSID stating - "September 18, 2023 - The proceeding is suspended pursuant to the parties’ agreement."
Re IDA, Tanzania have a couple of days to pay the annulment case fee otherwise the annulment is suspended.
Are they ready to pay up?

[hunter154] 19/9/2023 11:27

The PE on FY23 earnings is ca 8 for a company that has produced such good numbers and operational performance.
This stock is like a coiled spring….at some point it will really lift off.

[johnwig] 19/9/2023 11:21

I have added Dividend Information to the header. Don't spend it all at once.

[maddox] 19/9/2023 10:39

These super results came in pretty much bang on our calcs - based on the rns reports on the case results. Excellent transparency for shareholders. We already knew that LIT's cash position was good based on the intended declaration of a dividend - but we now have a share buy-back as well. This suggests that more cash realisations are in view and the outlook is very positive.

Both of these actions signal to Mr Market that the management think the shares are very undervalued. If you can invest your cash and gain an IRR of 78% - and yet buying back your shares is a better use of your capital - then it indicates the degree of undervaluation. Paying a dividend will satisfy the investment criteria for some institutional funds and thus widen the investor universe.

It'll be interesting to see what the Analysts make of these results and what new forecasts they produce.

[hunter154] 19/9/2023 10:26

Thanks Citywolf- I haven't had a chance to read full RNS yet.
I will tune into the webcast this evening to get more flavour on status quo.