Manolete Partners Share Discussion Threads

[rmjpb] 25/6/2022 13:44

I agree with the points you are making that 7.5% were fraudulent - it's the other 92.5% that we're not fraudulent - but for one reason or another the directors can't pay them back, as business conditions have deteriorated, or the loan literally just kept the business afloat on life support. How many think they can just shut up shop, and think they are off the hook for the loan? I would have thought many directors own their own houses, which a charge could be put on them for instance. It's a different kind of circumstance that Mano traditionally deal with, but if you get the right business model right to pick off these cases, the reward are potentially very lucrative.

[maddox] 25/6/2022 12:42

I've some thoughts on the Bounce Back Loan opportunity for MANO.

The Office for National Statistic, based on work by PWC, reckon about 7.5% of loans were fraudulent. That equates to c. £3.34bn in value. Which is truly massive - but I believe that this figure has to be deeply discounted to arrive at cases MANO can pursue. Firstly, a high proportion will be frauds perpetrated by 'persons unknown' that have effectively used false identities and very difficult to trace. The banks were supposed to conduct their normal due diligence and ID checks before issuing the loans - however, as the Govt was underwriting the losses, suggests that they were lax in this regard.

Secondly, there will be 'man of straw' that are real individuals but have no assets to pursue. So, it remains only the third category where a firm's directors took out the loan, paid it to themselves in some way, and then put the firm into a CVL or otherwise dissolved.

I cannot find a means of weighting these categories, nevertheless, with the amount of money involved this probably remains a considerable opportunity for MANO. My working estimate is there will be c. £1bn of value for MANO to pursue. It will be likely that the majority of these loans if fraudulent will be of the maximum £50k available, so will equate to c. 20,000 cases.

MANO will face the challenge of sifting through many cases to find the viable cases. Also, £50k case is well below MANO's sweet spot of c. £200k, and my estimated 20,000 cases is a hell of a lot of cases - when your current max capacity is 400 in-flight cases.

So, BBLs presents significant challenges as well as a huge opportunity for MANO. Creating a financially viable production line for processing BBLs will be difficult. Clearly, CEO, Steven Cooklin is figuring out how best to go after it - I'm looking forward to seeing his solution. I doubt that there is any other firm better placed to pursue this pot of gold than MANO.

[martindjzz] 25/6/2022 11:28

Thanks again maddox, bigbaggy and others. Your comments are all very logical and I have put some extra functions in my spreadsheet to see what else we can learn. I don’t think any of us doubt the potential for Mano to grow its Gross Revenues, and the real question is what will that do to profitability? I hope the following provisional conclusions are of interest.

The EBIT margin is a function of 3 reported numbers being Gross Revenues, Cost of Sales and Cost of Overheads. For the 5 FY periods 2018 to 2022 the Cost of Overheads has moved up and down in a 5% range from 20.9% to 25.9% of Gross Revenues, and in FY22 it was 24.8%. It is encouraging that Mano has the capacity to take on more cases and if they really do have high operational leverage, this will show up in reduced percentage Cost of Overheads over time. If that percentage does not reduce significantly, the conclusions may be that there is not so much operational leverage and that we are looking at a consulting model business where to generate more revenues you need proportionally more staff.

What Mano describes as the Cost of Sales is twice as important to the EBIT margin and hence ultimate profitability. Whereas in the early years Cost of Sales was around 30% of Gross Revenues, in FY21 and FY22 it was respectively 51.8% and 49.2%. I can’t find a definition of Cost of Sales in the report and accounts, and there is nothing about in in the presentations. In the absence any further information I can only conclude that Cost of Sales is just what Mano has to spend to buy the the claims in the first place. If they have to pay more and more to buy the claims it suggests Mano faces more competition than we might have thought. As it appears Cost of Sales is the single biggest factor in profitability I think we might want more focus on it in future presentations.

[rmjpb] 25/6/2022 10:33

The impact of bounce back loans seems to have been completely overlooked. This was a market that did not exist 2 years ago. The government made 1,560,309 loans available, equating to £47.36bn (source HM Treasury). How many of these were zombie companies, propped up over the last 10 years by low interest rates? Assuming some of these loans default, fraudulently, then Only a tiny sliver of this business could bring large amounts of new business streams....somwhere down the line. And as the CEO stated, it doesn't need 'expensive brains' to go after this work. What with Mano already being a favoured supplier to HMRC.....who you gonna call?

[maddox] 24/6/2022 20:11

Hi martindjzz,

I agree with Bigbaggy again. The ebit margin will have contracted due to the fall in revenue and op profit. So overheads, which they have kept down, take a proportionately larger slice out of op profit. This will reverse as revenue is restored and the ebit margin will then grow again.

They have of course increased staff so will need more than their 2018 revenue to generate 17p eps, but I get the impression that they believe that there will be lots of cases to go for, and anticipate hiring more IP specialists later in the year.

So, anyone uninformed looking at MANO's metrics cold - won't be too impressed, but taking an educated forward casting of the figures will be feeling positive based on the IMC presentation - that can be re-played here:



Regards Maddox

[brummy_git] 24/6/2022 17:26

Today Justin Waite & I talked about Manolete (starts 54:25)here.

hxxps://www.linkedin.com/posts/paul-hill-a5994116_stocks-to-follow-on-vox-markets-24-06-22-activity-6946129824616726528-WCLK?utm_source=linkedin_share&utm_medium=member_desktop_web

hxxps://www.voxmarkets.co.uk/articles/stocks-to-follow-on-vox-markets-24-06-22-8c4d7c9

[bigbaggy] 24/6/2022 17:02

Martindjzz: always appreciate your insightful comments. I cant see how the ebit margin stays the same. There is high operational leverage in the business. They say they have capacity to significantly increase caseload (and it looks like that is happening from their very current (impressive) data)so that gross profit should clearly drop through to EBIT. I heard it as a tired answer to a long session !

[martindjzz] 24/6/2022 12:31

Thanks Maddox. I maintain a spreadsheet going back to the beginning and in March 2018 EPS was 7p rising to 17p in 2020 before falling back to 8p in 2022. We probably need to see some big jumps in EPS for the share price to get back to pre pandemic levels.
Wondering how that is to be achieved you might have heard Mano respond to my question yesterday about their expectations of the future EBIT margin. It is now significantly lower than in all of the early years and their off the cuff suggestion was that it would now remain steady at around 25%. I don’t think that will be enough.

NAV per share has being growing from a low base - from 18p to 97p during the years 2018 - 2022.

[maddox] 24/6/2022 10:50

Hi martindjzz,

My preference for valuation is earnings per share. The NAV will eventually grow as the cash generated pays down debt but in the growth phase, that we hopefully are in the foothills of, as mentioned previously we will be running cashflow negative and investing in assets (cases) that won't reflect their full value until concluded.

As MANO issues few shares and has no M&A ambitions the shares will not be diluted to any extent and thus basic eps will be a good yardstick.

The valuation looks stretched currently on a p/e of 37 due to the past challenging year, and reflects investors' expectations that earnings will recover.

Regards Maddox

[martindjzz] 24/6/2022 09:39

I’ve been invested in Mano since 2019 and am still enthusiastic about its prospects. The business is now maturing and we have become familiar with its features. What I still can’t decide is the right basis for valuing the company - profit basis eg PE ratio or asset basis eg NAV. What do others think please?

[maddox] 23/6/2022 21:52

Hi pogue,

Mr Market is very myopic and is only focusing on the missed expectations - which we already knew about from the trading update. Whereas, we on the BB here are discounting that as past history and are more interested in where we're going - which is looking far more positive. IMHO once these results are digested by the FIs the share price will recover.

But lets look at the optics - looking backwards at the metrics, that are based on FY 2022, these shares are expensive - looking forwards on a recovery to pre-Covid and further - they are a bargain. So, DYOR and make your own decision.

Regards Maddox

[pogue] 23/6/2022 17:50

RMJPB
I agree cant see the problem. They paid back £4 million of their credit facility, as mentioned above, with HSBC so cant see they are short of money to get cases either as Riverman has twice brought up. Still not understanding the price action here.

[rmjpb] 23/6/2022 16:50

For what it's worth from todays presentation I picked up a few things "very large opportunity to invest heavily in high quality cases....now is a great time to be investing to harvest" .... "Next largest competitors has a 2% market share" ... "raising interest rates will get rid of zombie companies".... "We have capacity to handle 400 cases, and are currently on 275 live cases", "bounce back loans, very big margins, lower cost legal brains, big volumes, staff up separately".... Or word to that effect.

[maddox] 23/6/2022 16:24

They have realised cash as Covid has slowed their expansion and cases have been realised and settled. Debt has been reduced. This will reverse as they expand again and they will draw upon the debt facilities they have negotiated as well as recycling generated cash.

Lets hope they return to a cash negative position as quick as possible.

>> tradertrev - it's fair to say they have a very good idea as to what they will recover on a case investment at the outset. However, as Bigbaggy says they have only recognised 25% of FY22 revenue as unrealised (yet to conclude the case). Typically, a good portion of these cases will be concluded shortly after the period close and before the results are published.

[cfro] 23/6/2022 15:41

.Wrong thread.

[riverman77] 23/6/2022 12:14

I'm not at all concerned about liquidity issues, more whether they will have sufficient liquidity to take advantage of all the opportunities. Would be a shame to miss out.

[bigbaggy] 23/6/2022 12:03

Tradertrev: the presentation today says 75% of revenues are realised (so completed - not estimated) and they got in over £12m in cash in the first 10 weeks of this new financial year. Looks like decent liquidity on top of their HSBC facility of £25m+10m.

[tradertrev] 23/6/2022 10:11

Given that they appear to ascribe pretty full fair values on case acquisition and have an average case duration of 13 months (probably rising given the Covid hiatus) one should assume that revenue is estimated and reported about a year before it is received and corrected (up or down). In my experience that has the potential to lead to liquidity issues.
I have no position in this share and not looking to establish one either way. Had a profitable long trade about 3 years ago.

[riverman77] 23/6/2022 09:39

All looks very promising. The only question is will they have sufficient funds to take advantage of all the opportunities they are now seeing. Liquidity looks adequate rather than exceptional. I guess the £9.5m win post year should help in that respect.

[pogue] 23/6/2022 09:28

Why is it falling then?

[brummy_git] 23/6/2022 08:07

As sure as day follows night, the outlook for UK Insolvency Litigation specialist Manolete is bright.

Find out here why from CEO Steven Cooklin

www.linkedin.com/posts/paul-hill-a5994116_interview-steven-cooklin-ceoofmanolete-activity-6945632340589068288-Z0p-?utm_source=linkedin_share&utm_medium=member_desktop_web

[brummy_git] 23/6/2022 07:17

Very positive outlook today from Manolete, the UK's #1 'Insolvency Litigation’ specialist.

Find out all the news & valuation here.

www.linkedin.com/posts/paul-hill-a5994116_mano-mano-covid-activity-6945618254266568704-l57z?utm_source=linkedin_share&utm_medium=member_desktop_web

[maddox] 20/6/2022 18:28

Hi dekle,

A good question to ask - otoh as the strike effects criminal cases it may free up court time for commercial cases? Either way, very few of MANO's cases end up in Court as there is an overwhelming benefit to both parties to reach a settlement quickly and without additional lawyers' fees.

[dekle] 20/6/2022 16:44

The threat of the judiciary striking might cause more court sitting delays

[maddox] 20/6/2022 15:35

MANO presentation on 23 June at 2pm with IMC -
There is an excellent opportunity to pose some questions in advance.