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LIT Litigation Capital Management Limited

-2.30 (-2.34%)
Last Updated: 09:37:43
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Litigation Capital Management Limited LSE:LIT London Ordinary Share AU000000LCA6 ORD NPV (DI)
  Price Change % Change Share Price Shares Traded Last Trade
  -2.30 -2.34% 96.00 43,621 09:37:43
Bid Price Offer Price High Price Low Price Open Price
95.20 96.00 98.40 96.00 97.80
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
Last Trade Time Trade Type Trade Size Trade Price Currency
09:31:30 AT 2,800 96.00 GBX

Litigation Capital Manag... (LIT) Latest News (1)

Litigation Capital Manag... (LIT) Discussions and Chat

Litigation Capital Manag... Forums and Chat

Date Time Title Posts
29/11/202317:29A newer, freer thread but only for honest posters.1,271
07/2/202309:08peepol whu kant spel shudnt right hedders....194
25/5/202112:5450% growth year after year after year46

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Litigation Capital Manag... (LIT) Most Recent Trades

Trade Time Trade Price Trade Size Trade Value Trade Type

Litigation Capital Manag... (LIT) Top Chat Posts

Top Posts
Posted at 05/10/2023 07:44 by maddox
Share Buy-Back starts today. A$10m committed (£5.23m c. 4.5% of current mkt. cap.). Opening mid-price this morning 98p. Let's see how the share price responds?

We also have positive newsflow in prospect. LIT confirmed with the results that they will continue to report case wins. Patrick Moloney indicated that we have 12 cases at a late stage of maturity - as is the norm with Lit Fin - you cannot predict when they will fully conclude.

In comparison with last year FY23, which produced fantastic results, we had one case conclude in 1H and five conclude in 2H.

Last year - some of those case wins rns reports revealed eye-catching returns which should attract some attention.
Posted at 01/10/2023 07:41 by mtioc
LCM’s capital allocation decisions should be viewed in the context of its unusual ability to potentially compound incremental capital at a 70% IRR.

I am sure LCM did their best at the time. Credit providers probably deem litigation finance higher risk on the criteria that drive credit models: probability of default and loss given default. In the UK, a few litigation funders did not survive Covid (especially those with a more retail focused model). The underlying assets are esoteric and illiquid, with a limited secondary market. I am not surprised that in the difficult days of February 2021, LCM had to pay top of the market range. It appears to be SOFR (a US dollar overnight rate, currently 5.3% vs US$ LIBOR of 5.8%). LCM were smart enough to cap the total return to 13%. It appears LCM can redeem the loan (i.e. any call protection has expired). LCM are looking at a retail bond that may reduce the cost of debt, but may be a lot of hassle compared to private credit providers like Northleaf. The key point is that if you can compound at 70%, within reason, your debt interest rate is pretty irrelevant and, if LCM has investment opportunities, it should be increasing not reducing debt.

I think the management acknowledge that the proposed dividend is not a logical allocation of capital. Their rationale appears to be that it is small (a few million AUS$), potentially encourages some institutional investors (for unexplained reasons) and is a “reward” for shareholders. The reward is not clear to me. If a higher rate tax payer, a UK shareholder receiving AUS$100 of dividend (paid out of LCM’s post tax earnings) may receive AUS$55. AUS$100 compounded at 70% over five years produces $1,420 (14x). For obvious reasons, I wish they would stop “rewardingR21; me with dividends. The management team realise this, which begs the question: if they are prepared to do something slightly stupid for “right” reasons, in different circumstances, will they be able to persuade themselves to do something bigger and even more stupid?

Share Buyback
I support this. For reasons discussed above, LCM appears far below any reasonable estimate of intrinsic value. That said, if a company introduces a buyback programme, it should state how it is valuing its purchase (of its own shares) with shareholders' capital. In other words: when would it buy its shares, and more importantly, when wouldn’t it? Particularly given LCM's ability to invest incremental capital at such high rates. Very few companies do this. Simon Wolfson, CEO at Next plc, does so very well.

This leads to my major issue with LCM is its market, rather than shareholder, communication. There are no forecasts and I appreciate it is very difficult business to forecast (realisations in particular). I have not seen any broker reports that attempt to explain or value the business by alternative methods (NAVx,DCF etc..). There is a “read across” to Burford but there are scale, size and return differences. When I looked at LCM, the best resource was this BB (again, many thanks to the remarkably well-informed other posters). The company needs to get better institutional quality market communications (e.g. kick its brokers to produce a proper note) if it wants to attract institutional shareholders and drive the share price.
Posted at 22/9/2023 08:17 by someuwin
The impressive YoY increase in assets under management (now over $500m) is a good indicator of the underlying growth of LIT...

But when you look at the chart since listing you can see that the share price was higher 2 years ago, and at a similar level 4 years ago.

We know that the shares in issue has only increased by 10% in all that time. So we can see that the share price has a lot of catching up to do to reflect the real value here. Reiterated by the fact they are embarking on a $10m share buyback scheme.
Posted at 21/9/2023 12:55 by someuwin
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 29.5ยข (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."
Posted at 20/9/2023 12:09 by nchanning
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
Posted at 19/9/2023 15:05 by maddox
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]
Posted at 19/7/2023 09:42 by 74tom
Maddox, I strongly disagree with your view & the financial statements of BUR back up why.

On p42 of their Q1 quarterly they break down the split between deployed costs & unrealised gains, both on a consolidated basis & BUR only basis;

Total Burford Capital Limited equity / book value at 31/03/23 was $1.992b. Of this $1.395b was from unrealised gains ($959m YPF, $435m everything else). If they switched to cost accounting then Burford only equity would plunge to $597m / £461m ($556m / £430m on a consolidated basis).

So their current market cap values of £2.08b values them at ~4.5x book value. Further, the balance sheet would look incredibly fragile with $1.26b of bond related debt looming over everything else. I do not think there is a chance they would trade where they do using a cost accounting framework.

Also, the deployed cost of none YPF cases at 31/03 was $1.5b which is ~£5.30 per share, so I've no idea where you are getting $19 from. I know this is accurate because had they lost YPF then the remainder of their cases still underpinned their share price pre the March 31st verdict, which made the risk reward back then remarkably good.

Pre yesterday's update, LIT traded at 2.1x it's 31/12 shareholder equity of A$85.5m / £45m. So even if it traded on the 4.5x BUR rating which you believe is way below true value, the market cap would sit at £180m / £1.51. And that is of course ignoring the record performance in H2. By my estimates the full year results will show a growth in shareholder equity to ~A$125m / £65m, at the same 4.5x BUR ratio this would see a market cap of £292m / £2.45.

In reality I suspect LIT will re-rate to somewhere in the middle of their current lowly rating of 2.1x and the 4.5x of BUR, which would be ~£1.80.

Cost accounting may be prudent and simple on the face of it, but on it's own it over emphasises debt & under emphasises cases that have been won or are in the process of finalising the quantum of an award & which undoubtedly have a monetary value which could be realised via a third party sale if necessary.

Besides, BUR do give the best of both worlds by disclosing the deployed cost & the incremental unrealised FV gain. Should LIT do the same then not much will change from present, except that investors will be able to value them against BUR & other peers on a level playing field.
Posted at 18/7/2023 13:41 by maddox
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.
Posted at 04/7/2023 11:54 by 74tom
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.
Posted at 04/7/2023 09:01 by 74tom
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.
Litigation Capital Manag... share price data is direct from the London Stock Exchange

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