Overview
Litigation Capital Management Ltd (LIT) is an Australia based Litigation Finance and ancillary services' group. The company was incorporated in 1998, helping its clients in funds recovery from legal claims. The company is the first litigation funder globally and has assisted companies and individuals. The company’s primary focus is on management and financing of Litigation Projects. The company has provided assistance to more than 40 Completed Litigation Projects, which include nearly 190 cases. The majority of the projects are obtained in insolvency, accounting and Australian legal sectors using the referral networks. The company has its offices in Sydney, Melbourne, Brisbane, Singapore and London. The company’s product portfolio includes Judgement enforcement funding, Security for costs, Funding for International Arbitration, Law Firm/ Portfolio Funding, Disbursement Finance, Fully Financed Litigation and Litigation Finance for Companies.

The current Non-Executive Chairman is Jonathan Moulds. Patrick Moloney held the responsibilities of the Chief Executive Officer and became executive director in December 2013. Stephen Conrad holds the responsibilities of Chief Financial officer.

Key Statistics



Top Shareholders

 
Recent News

On 6th November 2019, Litigation Capital Management announced the selection Joint Broker of the company. The Investec Bank plc will be the company’s new Joint Broker.

Financial Highlights – Financial Year 2019 (30^th June 2019, AUD)


(Source: Annual Report, Company Website)

For the financial year ending 30^th June 2019, driven by an increase in the litigation services revenue for the period, the company’s revenue increased to AUD 34,707 thousand from AUD 29,683 thousand in the financial year 2018. The company’s gross margin stood at AUD 20,341 thousand in the financial year 2019 versus AUD 16,510 thousand in the financial year 2018. Due to an increase in the expenses related to the employee benefits, depreciation, IPO and other costs, corporate expenses for the period, the company’s PBT (Profit before tax) declined to AUD 10,150 thousand in the financial year 2019 from PBT (Profit before tax) of AUD 11,964 thousand in the financial year 2018. The company’s PAT (Profit after tax) stood at AUD 7,111 thousand in the financial year 2019 versus a PAT (Profit after tax) of AUD 8,638 thousand in the financial year 2018. The company’s basic earnings per share stood at 8.65 cents in the financial year 2019 versus a basic earnings per share of 15.24 cents in the financial year 2018. The company’s diluted earnings per share stood at 8.07 cents in the financial year 2019 versus a diluted earnings per share of 15.07 cents in the financial year 2018. The company’s total assets were reported at AUD 84,744 thousand in the financial year 2019 versus total assets of AUD 29,526 thousand in the financial year 2018. The company’s net assets were reported at AUD 76,239 thousand in the financial year 2019 versus net assets of AUD 25,423 thousand in the financial year 2018. The company’s IRR (Internal rate of return) for 8 years stood at 80 per cent. The company’s 8-year Portfolio ROIC (Return on Invested capital) was at 135 per cent. Cash and cash equivalents stood at AUD 49,119 thousand in FY2019 as compared to AUD 13,787 thousand in FY2018, reflecting a surge of 256 per cent.

Share Price Performance


Daily Chart as at 19-November-19, before the market closed (Source: Thomson Reuters)

On 19th November 2019, while writing at 10:07 AM GMT, Litigation Capital Management Ltd. shares were clocking a current market price of GBX 72.80 per share and remained same in comparison to the last traded price of the previous day.The company’s market capitalisation was at £83.41 million, with a dividend yield of 1.20 per cent at the time of writing.

 On 1^st May 2019, the shares of Litigation Capital Management Ltd. have touched a new peak of GBX 117.50 and reached the lowest price level of GBX 56.75 on 19th December 2018 in the last 52 weeks. The company’s shares were trading at 38.04 per cent lower from the 52-week high price mark and 28.28 per cent higher the 52-week low price mark at the current trading level as can be seen in the price chart.The company’s 5-day stock's daily average traded volume was 75,969.40; 30 days daily average traded volume- 94,587.20 - and 90-days daily average traded volume – 348,365.99. The shares of the company have delivered a negative return of 12.50 per cent in the last quarter. The company’s stock surged by 3.26 per cent on a YTD basis. The company’s stock has given investors 2.54 per cent of a positive return in the last month. 

Valuation Methodology
Method 1: Price to Book Value Approach (NTM)



To compare Litigation Capital Management Ltd withits peers, Price/Book Value multiple has been used. The peers are Sliver Chef Ltd(NTM Price/Book Value was 0.01), Millennium Services Group Ltd(NTM Price/Book Value was 0.03), Tarena International Inc(NTM Price/Book Value was 0.05), Collection House Ltd(NTM Price/Book Value was 0.05) and Hi Sun Technology (China) Ltd(NTM Price/Book Value was 0.06). The Average of Price/Book Value (NTM) of the company’s peers was 0.04x (approx.)
 
Method 2: Price to Earnings Approach (NTM)
 
 

To compare Litigation Capital Management Ltd withits peers, Price/Earnings multiple has been used. The peers are Healthcare Services Group Inc(NTM Price/Earnings was 20.87), Nomura Co Ltd(NTM Price/Earnings was 20.04), Science Group Plc(NTM Price/Earnings was 15.94), Cardtronics Plc(NTM Price/Earnings was 15.73) and Petards Group Plc(NTM Price/Earnings was 10.30). The average of Price/Earnings (NTM) of the company’s peers was 16.58x (approx.)

Risk Assessment and Growth Prospects

The company operates inmultiple geographies and its profits can be impacted negatively due to the foreign exchange rate fluctuations. To meet the new regulations, the group needs to implement new processes, failing to do so would increase the compliance risk. The company has been focussed on its services and customer support, which has resulted in a higher level of customer satisfaction. The company has a strong financial discipline which helped the company to have a robust and effective balance sheet with good infrastructure to support rapid growth. The company is looking forward to identifying new sector opportunities within the Litigation market. The company is actively engaged to improve its referral network, which will help them to capture more market share and is monitoring opportunities to enter into new markets.

Conclusion

Although, the profitability performance declined marginally,the top-line performance has improved for the period. The company needs to manage its operating and non-operating cost effectively. The company has made a significant increase in both the quality and the number of applications received. In FY2019, the company received 419 applications versus 125 applications in the financial year 2018, an increase of 235 per cent. The company is actively engaged to improve its referral network, which will help them to capture more market share and is monitoring opportunities to enter into new markets.

The company is looking forward to exploring opportunities in the untapped and vast corporate portfolio space and expects single-case funding growth. The company based on its strong pipeline expects strong operational and financial performance in the coming years with support coming from the litigation funding market.

Over the course of 4 years (FY14 - FY18), the company’s revenue surged from  AUD 0.42 million in FY14 to AUD 0.54 million in FY2018. Compounded annual growth rate (CAGR) stood at 6.48 per cent.
 
Based on the decent  fundamental prospects and support from valuation done using the above two methods, we have given a “Speculative Buy” recommendation at the closing price of GBX 72.80 (as on 18th November 2019) with high-single digit upside potential based on 0.04x NTM Price/Book Value (approx.) on FY20E book value per share (approx.) and 16.58x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures and Peers information has been taken from Thomson Reuters.Currency exchange rate taken for 1 AUD = 0.52598 GBP.
*The “Speculative Buy” recommendation is also valid for the current price as covered in the report (as on 19^th November 2019).

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