Business Overview
Manolete Partners PLC (LON: MANO) is a London-headquartered insolvency litigation financing company which invests in insolvency and insolvency-related claims and has completed investments in over 300 UK specialist insolvency cases. The company is known for its knowledge of the Insolvency and Recovery sector and seeks to maximise returns to creditors by working with Insolvency Practitioners and their lawyers. The company has successfully completed more than 200 insolvent estates cases. The company has worked with around 300 IP firms and lawyers. The revenue from operations is differentiated in two segments, namely Funded cases and Purchased cases. The group work in partnership with Insolvency Practitioners Association, Institute of Chartered Accountants in England and Wales (ICAEW) and Association of Business Recovery Professionals. The company follow a simple, fast, effective and fair model to solve its cases.

The current Independent Non-Executive Chairman is Peter Bertram and joined the group in November 2018. Steven Cooklin holds the responsibilities of the Chief Executive Officer and founded the company in the year 2009. Mark Tavener holds the responsibilities of Chief Financial officer.

Key Statistics



Top Shareholders

 

Recent News

On 10th December 2019, Manolete Partners announced that the company's Chief Financial Officer, Mark Tavener, was granted options over 64,593 ordinary shares of 0.4 pence each in the company.

On 2^nd December 2019, Manolete Partners announced that the company's Chief Financial Officer, Mark Tavener, was granted options over 6,451 ordinary shares of 0.4 pence each in the company.

Operational Update

In the first half of the financial year 2020, the investment in new cases increased by 110 per cent to 65 versus 31 cases in the first half of the financial year 2019. The total number of new cases signed in the 12 months period in the year 2019 was 61. The company’s delivery of realised returns stood at 18 cases, with gross proceeds of GBP 2.4 million in the first half of the financial year 2020 versus 12 case realisations and gross proceeds of GBP 5.5 million in the first half of the financial year 2019. The company’s case duration stood at 11 months on an average for the period. The average money multiple in the first half of the financial year 2020 stood at 2.9x versus 3.6x in the first half of the financial year 2019. The company expects a high level of potential case completions in the coming months, while six cases has been completed and generated GBP 762 thousand of gross proceeds. The number of live cases went up by 72  per cent for the period. The company’s live cases increased to 131 as at 30^th September 2019 from 76 cases as at 30^th September 2018. The live cases as at 7^th November 2019 stood at 144. The company signed its 90 per cent of live cases in the last 18 months period. The company had completed all earlier case vintages with a 100 per cent completion rate and has two remaining cases from the financial year 2017. The company successfully completed the roll-out of in-house lawyers in the regional network. The company in its offices at Scotland, Southern England, Midlands, North East England, Eastern England, London, Wales, South West England and North West England is having a highly experienced proprietary network of insolvency solicitors. The company announced the selection of the new Chief Financial Officer (CFO) in October 2019.

Financial Highlights – H1 Financial Year 2020 (30th September 2019, GBP, thousand)


(Source: Interim Report, Company Website)
 
In the first half of the financial year 2020, the company’s investment in cases was up by 83 per cent to GBP 25.4 million versus GBP 13.9 million in the first half of the financial year 2019. The company’s revenue surged by 15 per cent from GBP 6.5 million in H1 FY2019 to GBP 7.5 million in H1 FY2020. The surge in the revenue was driven by growth in fair value of existing live cases and an increase in unrealised income due to an investment made in new cases. The gross profit increased by 50 per cent to GBP 6.6 million in the first half of the financial year 2020 against GBP 4.4 million in H1 FY2019. The adjusted operating profit (before exceptional items) stood at GBP 4.47 million in the first half of the financial year 2020 versus an adjusted operating profit (before exceptional items) of GBP 3.27 million in the first half of the financial year 2019. The company’s reported EBIT increased by 37 per cent from GBP 3.3 million in H1 FY2019 to a reported EBIT of GBP 4.5 million in the first half of the financial year 2020. The PBT (Profit before tax) stood at GBP 4.3 million in the first half of the financial year 2020 versus GBP 3 million in the first half of the financial year 2019, reflecting an increase of 42 per cent for the period. In the first half of the financial year 2020, the PAT (Profit after tax) increased by 41 per cent to GBP 3.5 million versus a PAT (Profit after tax) of GBP 2.5 million in H1 FY2019. The company’s earnings per share were up by 41 per cent to 7.9 pence in the first half of the financial year 2020 from earnings per share of5.6 pence in H1 FY2019. The diluted earnings per share stood at 7.8 pence in H1 FY2020 versus diluted earnings per share of 5.6 pence in the first half of the financial year 2019, while the company proposed an interim dividend of 0.5 pence.

Key Performance Indicators


(Source: Annual Report, Company Website)
 
In the financial year ending 31^st March 2019, the company’srevenue increased by 30 per cent to GBP 13,772 thousand versus GBP 10,630 thousand in FY2018. The gross profit went up by 49 per cent to GBP 10,087 thousand in FY2019 from GBP 6,791 thousand in FY2018. The operating profit (before non-recurring items) went up by 77 per cent from GBP 4,071 thousand to GBP 7,212 thousand in the financial year 2019. The company’s Profit after tax surged by 43 per cent to GBP 4,664 thousand in FY2019 from GBP 3,261 thousand in FY2018. The value of investments went up by 72 per cent to GBP 18,197 thousand in FY2019 from GBP 10,555 thousand in FY2018. The company’s signed litigation investments increased by 28 per cent to 279 in FY2019 versus 218 in FY2018. The live cases went up by 47 per cent from 57 in FY2018 to 84 in FY2019. In the financial year 2019, Purchased cases increased by73 per cent to 71 from 41 in FY2018.

Financial Ratios

 

The reported gross margin in H1 FY2020 surged by 20.2 per cent to 88.7 per cent as against gross margin of 68.5 per cent reported in last year for the same period. The reported EBITDA margin improved for the H1 FY2020 to 59.8 per cent versus the EBITDA margin of 50.3 per cent reported in last year for the same period. The reported operating margin improved for the H1 FY2020 to 59.8 per cent versus the operating marginof 50 per cent reported in last year for the same period. The reported Pretax margin of 57.4 per cent for the H1 FY2020 stood higher than the industry median of 34.8 per cent. Net margin reported was 46.2 per cent for the first half of the financial year 2020, reflecting an increase of 8.4 per cent when comparedwith last year data for the same period. Return on equity for the first half of the Financial year 2020 stood at 11.7 per cent, which was higher than the industry median of 7.9 per cent. On the liquidity front, Manolete Partners Plc’s current ratio stood at 13.93x and was significantly higher than the industry median of 1.92, reflecting sufficient current assets to pay its short-term obligations. On leverage front, the asset-equity ratio of the Manolete Partners Plc’s was 1.08x and was lower than the last years’ asset-equity ratio of 1.76x.

Share Price Performance


Daily Chart as of  February 4^th, 2020, before the market close (Source: Thomson Reuters)

Manolete Partners Plc shares were trading at GBX 410.00 at the time of writing before the market close (at 8:00 AM GMT) on 4^th February 2020 and were same versus the previous day closing price. Stock's 52 weeks High is GBX 620.00 and Low is GBX 223.00. Stock’s average traded volume for 5 days was 21,732.60; 30 days – 22,324.80 and 90 days – 17,409.48. The average traded volume for 5 days was down by 2.65 per cent as compared to 30 days average traded volume. The company’s stock has given investors 78.65 per cent of a positive return in the last year. The outstanding market capitalisation was around GBP 181.48 million, with a dividend yield of 0.30 per cent.

Valuation Methodology

Method 1: Price to Earnings Approach (NTM)




To compare Manolete Partners Plc withits peers, Price/Earnings multiple has been used. The peers are Tamburi Investment Partners SpA (NTM Price/Earnings was 47.72), EAB Group Oyj (NTM Price/Earnings was 28.73), Gresham House Plc (NTM Price/Earnings was 22.63), Tatton Asset Management Plc (NTM Price/Earnings was 19.50) and Foresight 4 VCT Plc (NTM Price/Earnings was 3.81). The average of Price/Earnings (NTM) of the company’s peers was 24.47x (approx.)

Method 2: Enterprise Value to Sales (NTM)


To compare Manolete Partners Plc withits peers, EV/Sales multiple has been used. The peers are Tinc Comm VA(NTM EV/Sales was 22.77), Coreo AG(NTM EV/Sales was 8.46), Mercia Asset Management Plc(NTM EV/Sales was 6.64), Tatton Asset Management Plc (NTM EV/Sales was 6.60) and Titanium Oyj (NTM EV/Sales was 4.95). The average of EV/Sales (NTM) of the company’s peers was 9.88x (approx.)

Growth and Risk Assessment

The company had been focussed on its services and customer support, which had resulted in a higher level of customer satisfaction. The company has strong financial disciplines 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. To meet the new regulations, group needs to implement new processes, failing to do so would increase the compliance risk.

Conclusion

The company could be exposed to adverse cost liabilities if their investments underperform against expectations which could affect their business. However, the business of the company continued to grow at a decent pace. The insolvency market is a developing market with decent market share being captured by Manolete Partners in the UK region. The company has forecasted a strong stream of new cases and seeks to deploy new funds from an IPO which could help to grow its business.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 3 years (FY16 - FY19), the company’s revenue surged from  GBP 4.80 million in FY16 to GBP 13.77 million in FY2019. Compounded annual growth rate (CAGR) stood at 42.00 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 410 (as on 3^rd February 2020) with single-digit upside potential based on 24.47x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.) and 9.88x NTM EV/Sales (approx.) on FY20E sales (approx.).
 
*All forecasted figures and Peers information has been taken from Thomson Reuters.
* The Speculative Buy recommendation is also valid for the current price as covered in the report as on 4^th February 2020.

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