Litigation Capital Manag... Share Discussion Threads

[74tom] 07/7/2023 09:27

Ah, the daily attempt to play the bots...

TRADING UPDATE INCOMING ANY DAY NOW!

RECORD REVENUES TRANSFORM OUTLOOK

SO CHEAP DOWN HERE - CLOSE YOUR SHORTS ASAP OR GET FRIED

Sensible post to come in a few mins...

[jackson83] 07/7/2023 07:06

ANY ONE KNOW how many are SHORTING ? could make more SHORTING before buying back in lower then

[jackson83] 07/7/2023 07:04

FILL YOUR PANTS TIME ?


I will add at 60p seems overvalued now as no new news or cash this week lol

[citywolf1] 06/7/2023 15:51

Agree. This is 20% cheaper than it was in 2019. Since then the net assets have grown by more than 60% and they have raised US$450m in third party funds with a 35% carry structure!

Your extrapolation is sound to me, and tbh I think you could argue that it is in some respects conservative: the 17.8m settled should have been more than replaced by capital committed since Dec (1H run rate was A$107m/27m to LCM); 2) The 101m of cases is extremely mature (65m over 4 years and 30m over 3 years as of HY) so you'd expect settlements to be front loaded and well within 3 years. 3) A further 99m has been committed but not invested, you'd expect most of this to be invested and realised within 36-42 months, which could almost double the numbers again...

I too am surprised how little market interest there seems to be in such a weighted bet. One of the factors that doesn't help the investor engagement here is the currencies being all over the place. They report in AUD, the funds are in USD and the listing/valuation is in GBP. A nightmare to model! Now the CEO/CFO are in London and EMEA business expanding surely a matter of time until they switch to GBP reporting you'd think.

[74tom] 06/7/2023 15:03

Glad it's been useful guys. I've followed this for years & I don't think it's ever been anywhere near as cheap as it is today, following those major settlements 2 weeks ago.

@citywolf1 I agree on the PE valuation being difficult to justify due to the lumpiness. I guess you've got to consider how it would be valued in the event of a bid, and undoubtedly P/B would be the metric of choice. Your methodology of using 4x invested costs adjusted for overheads & time value of money looks about right to me.

And yes, the key is how this BV develops over the next few years, there is huge potential for it to explode when you extrapolate the numbers.

There was A$119m of LIT specific capital invested at 31/12, A$17.8m has settled in H2 driving that A$60m gross profit @ an ROIC of 340%. If the remaining A$101m was to settle evenly over the next 3 years at the same multiple it would deliver gross profit of A$343m... deduct 3x $23m for overheads, 30% tax & apply an 8% discount rate and you get a present value of A$178m.

A$178m + A$124m = A$302m * 2.5 BV / 1.9 FX = £397m / £3.30 a share price target by end of FY26.

Of course you then have to factor in additional Fund 1 settlements from the remaining 40% of deployments that will likely conclude at the end of this calendar year + any from Fund 2.

Whichever way you cut it, surely there is enough upside + margin of safety to attract some institutional investment?

Oh and you're right on the Panthera RNS - the table is a bit misleading.

[citywolf1] 06/7/2023 12:34

Thanks @74tom, great research.

To your earlier question about valuation (4/7/23) in my view this is a P/B play given the accounting methodology. The earnings are too lumpy and unpredictable for me to value it primarily on P/E. To that, I think a minimum of 2.5x book is sensible: if you look at the economics of the 3rd party fund model, they get their c.160% profit (based on historical perf.) on the 25% coinvest, plus usually a 35% carry, which in most cases equates to a similar amount again (35% x 75% = c.26%). So they are getting c.4x on balance sheet cost. Applying a discount and allowing for costs, 2.5x multiple seems sensible. Of course a lot of the balance sheet is still in direct cases only, but on the other hand it is in very mature cases which should have above average multiples as a result - and be realised very soon, thus reducing the discount one should apply.

So: if we take an assumption of A$60m gross profit based on RNSs to date, assume A$23m of costs and 30% tax. That gets us to a net profit of c.A$26m and a BV of c.A%124m, which at a 2.5x multiple is £1.40.

So in short I agree with your valuation! Now looking forward at the profit potential for next few years this share could really motor...

(Btw as I read the Panthera RNS, LCM gets the either the multiple or the % commission, whichever is higher, rather than both?)

[someuwin] 06/7/2023 11:01

Yes, cheers for your input here 74tom - very helpful.

[robsy2] 06/7/2023 10:57

Nice work 74tom on 1717-1719. Exciting times ahead me thinks.

[74tom] 06/7/2023 09:33

Also worth nothing that we just passed the 3 year mark on the Prairie / GreenX case, which is currently awaiting judgement having completed arbitration last November.

Based on the award multiples stated in the Panthera RNS on 28th Feb, we'd now be on a 3.75x multiple of invested capital + a 12.5% case commission. The claim value is for £737m although it's unlikely they'll get the full amount if successful. However, based even a £200m award would see LIT make A$47.5m in commission / success fee + A$67.5m in MOIC & leave Greenx with £140m (Greenx are trading at £145m market cap, versus ~£10m when we provided the funding).

So many irons in the fire here...

[74tom] 06/7/2023 09:09

@Someuwin, regarding the Panthera case, I suspect that they jumped the gun in announcing a 'conditional' agreement, rather than waiting for the formal LTA to be agreed.

Contrast their RNS with Prairie Mining's when they secured A$18m for a mining arbitration matter back in 2020;

In terms of value of the claim, I suspect it will similar to the Prairie / GreenX arb claim again Poland - so in the $300m-1b range.

I base this on their admission doc comments that state;

"The Board and Management is of the opinion that because the 1.74Moz resource defined represents only approximately 10 per cent. of the gold in soil anomaly
defined at the 100ppb level, further drilling will delineate a world class resource"

+

"Targeting 6.0Moz+ Au resource

o Current JORC inferred resource of 1.74Moz on a 100% basis (1.22Moz on a 70% attributable basis), defined over approximately 10% of an extensive gold in soil geochemical anomaly."

70% of the target resource would be 4.2Moz, assuming an in ground value of $100/oz you get a $420m claim.

No doubt they will ramp it up higher than that in the first instance, if they get the funding finalised.

[jackson83] 06/7/2023 07:59

get ready for 60p's ?

[jackson83] 06/7/2023 07:58

I will top up at 65p level as INTEREST PAYMENTS RISE RED FLAGS .. the share price could drop when panic selling starts

some are SHORTING NOW ?


place your bets time / fill your pants re BAG HOLDERS .. as always never trust a wig man IN DARK GLASSES and mates funky finance BIG SHORT IS PAYING OFF NOW lol

[someuwin] 05/7/2023 20:44

Anyone got any views on the Panthera Resources (LSE:PAT) litigation?

On 28 Feb 23 PAT announced a US$10.5m funding agreement with LIT.

LIT had 2 months to complete 'detailed due diligence'.

That due dilligence period has been extended twice now with the latest date being 14 July.

All seems odd to me. LIT must know by now whether the case is worth taking on or not, so possibly a lot of politics going on behind the scenes? No idea what the value of the case might be?

[74tom] 05/7/2023 15:14

The share price is clearly out of line with hugely improved fundamentals as $80m of cash inflows in the last 5 months have transformed the balance sheet.

Someone has been shorting this - wouldn’t a squeeze to 160p be amusing. That would only put shares on a forward PE of around 10 & below what will be reported for H2 23.

[74tom] 05/7/2023 14:49

Last years trading update came on 7th July, so it could land any day now. Whoever has been playing games on the order book by absorbing buys & layering the sell side + gradually dropping the ask in an attempt to create the impression of a falling share price is going to fail miserably.

[74tom] 05/7/2023 13:25

Ps. Interest rates have absolutely zero impact here

[74tom] 05/7/2023 13:24

Sureeeee, market update inbound any day now which will report record revenues & EPS. Your short games are about to get blown out of the water ;)

[jackson83] 05/7/2023 13:16

BANK SOME / ALL THE SHIP IS ACTUALLY OK ALERT !! SINKING

maybe worry re high interest rates apply .

[jackson83] 05/7/2023 13:15

[PROFIT TAKERS CONTINUE ?

WITHOUT SOME NEWS this is going tank ? maybe see 65p / 72p again


I will rebuff then



PROBLEM IS INTEREST RATES ON THE UP so alarm bells RINGING NOW


NO NEWED NEED PANIC


MAYBR SEE 60P'S SOONER THAN LATER.L

[74tom] 04/7/2023 11:54

In my view it's evidence that a business can create tangible value that drives share price performance - that comes from investment returns + disciplined cost management, you have to have both over a consistent period of time in my view. If good returns get eaten up by bonuses or an expensive new office then the market won't reward top line performance.

As to Omni, I just can't understand why they've got 8 funds all with seemingly different, complex structures. Unless you know the specifics of each fund then you can't reconcile the balance sheet impact of each settlement. Have they simply been chasing EPV (Estimated Portfolio Value)? Which is a pumped up figure that appears to include the total value of the cases under management, unadjusted for the economic ownership of OBL / the Funds?

Where do you think LIT should be valued in comparison? If OBL were at £670m market cap last autumn having reported an equity loss of A$45m in FY22 on turnover of A$89m and will likely report an even bigger loss for FY23, surely LIT should be at least 25% of their pre crash market cap? I.e. a share price of £1.40. You could easily argue they should be at a higher ratio than that based on the performance metrics you posted & the fact LIT are far more leveraged to fund returns.

[pythian] 04/7/2023 11:45

That demonstrates very clearly that as things stand LIT is a much better prospect than BUR and presumably has no large Argentinian problem either...

[l2b] 04/7/2023 11:14

I agree Expenses management is important.
And Patrick has demonstrated that expenses will be tightly managed (including at a staff level).

But it's the business performance that is the engine power of share price performance.
And that's where LCM quality shines through.

Key metrics:
LCM has 97% win rate with overall 150% ROIC at 78% IRR.
OBL has only 76% win rate with overall 115% ROIC at 35% IRR (last 3 years).
BUR has 91% win rate with overall 92% ROIC at 30% IRR.

And LCM has the kicker of the 3PTY returns only starting - these numbers will only get juiced even further.
Then you reinvest at high rates of return and let operating leverage & compounding work its magic.

I also think LCM's accounting & fund structure demonstrates confidence in performance - they don't need to muck about.

OBL got rid of the CEO due to the downward trend in results but unfortunately it takes years to turn around culture & staff and then translate into $$$ results (cases alone take a couple years to play out on average).

[johnwig] 04/7/2023 09:10

Thank you very much for that clear and interesting analysis, 74tom.

[74tom] 04/7/2023 09:01

The final thoughts I had when comparing the two were around fund structure & fund timing. Having looked at Omni's funds, I'd argue LIT have negotiated the best structure I've seen. There is little doubt in my mind that Patrick has studied Omni in detail & fine tuned the terms so that the balance fairly rewards LIT's expertise whilst also being very attractive to investors. On a big win the split is near 50/50 and that is the way it should be in my view.

On timing, Omni raised a huge amount of fund AUM in a very short space of time from ~2016-2019. This meant that they had a huge amount of cases to source / fund & then a lengthy gap before any 'harvesting' could take place, accentuated of course by Covid. LIT have so far taken a more restrained approach, and already cash from their first 3 cases in Fund 1 (A$53.1m) has nearly satisfied the A$56.25m of Fund 1 deployment that is required. Further Fund 1 settlements can go towards Fund 2, overheads & balance sheet strength. Then once Fund 2 is substantially deployed, they can start on Fund 3 (Patrick said in March that Fund 3 would potentially be $500m in size & they would start the round in 12-18 months, so mid 2024).

So overall, I think the excellent overhead management, superior fund structure, relatively simple balance sheet & disciplined fund scale up sets LIT apart from Omni. Omni were a £650m market cap last autumn, given the above I see little reason that LIT can't move towards this level of valuation over the coming years.