Litigation Capital Manag... Share Discussion Threads

[citywolf1] 20/3/2024 12:12

Hi all - a solid if relatively uneventful update. The key gamechanger in the short term is going to be getting this stubborn rump of old balance sheet cases realised. None shifted during this 1H period. $40m of them are held at cost and they are 4+ years old on avg, so most should be generating big returns if successful due to 'rising multiple over time' model.

It is powerful both because of the huge NAV uplift it could bring but also because of the significant balance sheet cash it frees up to accelerate investment alongside the funds. Overall we have $90m of commitments well over 3 years old now, so no reason why in the next 1-2 years we should not expect c.160m of profits to come from these if returns are in line with the long term track record. That would put a rocket ship under the share price.

Btw - one quite large 'hidden' cost that is made apparent in today's pres is the amount of commitments which go unitilised. This is effectively money which gets tied up for 3-5 years in reserves but generates zero return as it's never drawn. You can see on p12 of the pres that out of the 181m committed to date only 130m was ever deployed - quite a big cash drag.

Anyway, that's just a cost of doing business here and the returns more than make up for it. The leverage of the funds model is extraordinary (6x in F1 to date!) and combined with the very mature balance sheet cases means we should expect to see bumper cashflows in the next 12 months.

[boozey] 20/3/2024 12:08

I would be interested in L2B's comments who has been quiet in recent times....

[gallamar] 20/3/2024 11:32

Will do.

I want to clarify that really lit is a compounding story. 3rd party funds are a game changer giving 4x diversification and 2x returns.

If the presentation can make investors look more forward i think it is powerful.

I will also note the buy back benefits.
1. Stops people selling us down. They play with other stocks without buy back.
2. That we can use the buy back to really indicate the confidence of future nav.

I think we really have 3 navs.
1. Spot nav. 90p and think about items at cost being moic of 2. So 108
2. View current portfolio as if completes. So looking at moic on investment in own investments and funds
3. Have investors consider when we are transforming to say 90% vs 50% today.

The story should be of expecting 4x multiple on 90% of our reinvested funds

[williamcooper104] 20/3/2024 10:31

Yep I didn't like the buy backs But using cash that would have gone on a divi got a buyback is not weakening the balance sheet So better to just buyback Nobody is really buying this for the divi yield

[luweiluwei] 20/3/2024 09:51

Can you remind them of the tax drain on the dividend Gallamar.
Reinvesting or buybacks makes so much more sense.
If they were ever to move to London that would of course save a lot of tax drain on dividends as well.

[gallamar] 19/3/2024 19:18

Mtioc. Very good summary.
I would like to have seen some of these themes much more clearly stated rather than through questions.

1. Why is 2x not fair
1. Time
2. Does the framework focus on
historical events which are driven more by deals with no performance fees?
3. Explain reason for 40m aud of historical trades. Is it an accounting requirement ( not their choice) and to speculate in bullet point worth more.
4 we have 100m aud over 36 months so impending realisations. Huge inflows which will roll into 3rd party funds.
5. How debt is easy to refinance
1. Allows diversification
2. Return optimisation.

I think 70pct of questions asked were mine so i am doing a follow up call with them later this week

[gallamar] 19/3/2024 19:11

I am going to speak to patrick and mary later this week.

They should have strongly pointed out.
1. Nav is 90p.
2. Within this maybe 18p is held at historical cost

They should have encouraged investors to consider this in light of historical metrics. At 2x. Nav is 108 =90+ 18.
This is a key key point

Also half of our investment is in own investmens. We need to invite the shareholder to see these will roll off soon and think about a NAV under 3rd party funding.

The whole power of 3rd party funds needs to be a central theme throughout the presentation.

1. Diversifying
2. Getting double return for same risk.
3. Our ability to do it where others cannot.
4. The operational leverage it will bring

Basically link the dots more

[maddox] 19/3/2024 14:34

74tom to return to the bb - seconded.

[williamcooper104] 19/3/2024 14:08

Markets not very

[johnwig] 19/3/2024 14:07

Thank you so much for your contributions Maddox and MTIOC. They are truly helpful and typify what these threads should be and so often are not. I also miss 74tom very much on the broader mechanics of how the Stock Market actually works as much as his expert views on LIT. Perhaps he he can be tempted to return and let us know his current opinions?

[mtioc] 19/3/2024 12:45

Good presentation this morning, which I am sure will be on the website.

Interesting market size/potential discussion, which I had not seen previously and is difficult to get for a nascent market.

Robust justification of share buyback as materially below “intrinsic value”. First, current NAV per share of c. 90 pence which values existing investments at 2.0x rather than historic 2.8x realised (this reflects maturity profile etc..). Second, c. $220m of current commitments will drive NAV. Lastly, benefit of third-party funds not fully reflected. Current average fund investment delivers 4x to LCM due to performance fees on top of investment. In other words, current share price does not give value to historical returns for current investments, any value for undrawn commitments, material “embedded̶1; fund performance fee upsides or any goodwill for a leading, difficult to replicate, asset manager with a 25-year track record (93% win rate) in growing market with long term funding relationships with some of the world’s leading investors. I do wonder why the broker does not issue a note capturing these points.

Discussion on fair value. Apparently, c. $40m of current NAV is performance fees. This is a mechanical result: if one of 53 investments if valued at X then fee would be Y.

Various cases mentioned, but emphasis on looking at portfolio.

Management recognise news flow point, but consider in context of materiality. Apparently, they are considering a podcast. I am sure “The Rest is Litigation Finance” will be a winner.

[maddox] 19/3/2024 12:07

An excellent set of results maintaining the momentum from 2023. We're going to have to stomach the fact that case conclusions are random. However, cases that don't drop into one period will drop into a later period - settle, win or lose, a case will conclude at some point; and returns increase the longer the case timespan.

Management are confident of achieving performance in-line with their historic track record. Considering that this is an IRR of 78% or 2.82x Money returned On Invested Capital [MOIC] - that is a very compelling statement. It's worth noting that the full value of this is not reflected in the balance sheet even taking into account fair value. On current case investments it is roughly x2 invested capital versus anticipated return of x4.

With the markets of Singapore and Hong Kong developing and LCM clearly looking to enter the US and Canada - the prospects for growth are enormous.

[tradertrev] 19/3/2024 11:45

Interim results were out today if anyone is interested!

[maddox] 19/3/2024 10:34

Just want to quickly point out that 'As at 31 Dec LIT has nil outstanding utilization.' of the credit facility that was a source of BB angst. This was expensive debt costing 13% - necessary at the time (Feb 2021) but now displaced.

[johnwig] 19/3/2024 09:16

Solid as a rock, I'd say. Post-Covid consolidation looking good. Direction of travel perfect. I'm always impressed by how good their management is, in particular Moloney, of course.

[dagoberia] 19/3/2024 08:39

Aaah i think I understand what you mean , that the PE ratio is not a reliable metric for this company?

[dagoberia] 19/3/2024 08:32

Hi NChanning, not sure how to read your msg lol, can you elaborate?PE looks pretty low or am i missing something? Thanks

[mighunter] 19/3/2024 08:21

If one wants to see the direction of travel and what the Bond will mean for LCM, the tremendous Burford shareholder letter is exceptionally instructive. I think both are excellent firms with excellent management teams. hTTps://investors.burfordcapital.com/overview/default.aspx?utm_source=sm&utm_medium=twitter_&utm_content=

[nchanning] 19/3/2024 08:05

Your annual reminder to delete your account if you say LIT looks cheap/expensive on a PE basis (even with fair value accounting ).

[robsy2] 19/3/2024 07:23

Nice. The company now has a market cap of 116m GBP and conservatively valued net assets of 98m GBP.

[gallamar] 18/3/2024 18:45

My main hope is some news on the debt. If we can maintain say 30m gbp of debt that gives us huge leverage and will speed up the compounding within the business

[gallamar] 18/3/2024 14:42

Given the nav was circa 105m gbp with some of that i held at historical cost i am not expecting fireworks.

Our IRR might be conservatively 50pct an annum. So 25pct for half year on say 80m gbp of Mark to market investrments.

The good thing is MTM you would expect increases out NAV and we have share buy back to protect downside.

Long term hold this one. I am hooing they give some guidance in the retail bond. Using debt would really help boost our operational gearing

[johnwig] 18/3/2024 09:41

We may well see results tomorrow which will redound to our advantage.

[luweiluwei] 04/3/2024 18:00

If really no cases have completed since September that'd be weird.
Maybe they stopped reporting since the move to fair value accounting?
We'll hear soon.
Hopefully a meaningful update on next fund too with the earnings report.

[makinbuks] 04/3/2024 17:43

I agree, with the maturity level of cases I was expecting monthly announcements. In fact the best news outlet is this board