Manolete Partners PLC

Founded in 2009, Manolete Partners PLC (LON: MANO) is a FTSE AIM Index listed Insolvency Litigation Financing Company, which works with insolvency practitioners and their lawyers to maximise returns to creditors.

Rationale for Valuation – Hold at GBX 201.50

• The realised profits for FY21 are expected to be higher following the 100% increase in case completions in 9M FY21.
• Over the past three years (H1 FY18 to H1 FY21), revenue and gross profit have surged at a CAGR of ~56.46% and 45.31%, respectively.
• From a technical standpoint, 14-day RSI (16.66) is supporting the upside movement.
• During H1 FY21, there was revenue growth of 153%, while the gross profit jumped 44% against H1 FY20. Likewise, EBIT was up 47%, while the profit after tax gained 49% versus H1 FY20.
• With robust first half performance, the Company proposed 134% increment in the interim dividend to 1.17 pence per share, against 0.5 pence per share paid for H1 FY21. 

Key Risks

• The ongoing UK government economic measures have significantly impacted the new cases and will continue to impact in the Q4 FY21.
• The performance can be impacted with delay in judgement and increase in average case duration due to closure of Courts and inability to work from the office amid Covid-19 crisis.
• Moreover, limited liquidity can restrict the potential to fund new cases. It can also fail to attract enough cases to manage their overheads.
• Furthermore, unexpected Court decisions can lead to adverse legal costs, and can impact on recoveries as projected.

Recent News

18 November 2020: Manolete announced that one of its larger portfolio cases had settled for £7.5 million of which Manolete's entitlement is £2.8 million. The defendants have now paid their first instalment of £2.5 million, of which Manolete's retained share is £1.48 million. Manolete expects to receive its remaining entitlement of £1.32m on or before 31 December 2021.

Q3 FY21 Trading Update for the quarter ended 31 December 2020 (as on 26 January 2021)

• MANO announced record case completions and cash inflows; however, new case investments remained low.
• The Company also highlighted in the interim results that new case enquiries began to fall sharply due to the UK Government economic support measures causing slowdown in UK company insolvencies.
• However, it completed an additional 43 insolvency litigation claims, which has brought the total to 95 completed cases in 9M FY21.
• The gross cash collected has increased by 60% for the first nine months to 31 December 2020, compared to the same period the last year.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (NTM) (Illustrative)

 Conclusion

Due to falling UK insolvencies, remained of FY21 will continue to face negative impact on the new cases. However, the Company reported 100% increase in case completions in 9M FY21, and therefore, realised profits is expected to be above than the market expectations. Moreover, the long-term prospects seem bright once the UK economic support is phased out and there is an increased rate of corporate insolvencies. Overall, the Company is well-positioned in the insolvency litigation financing market for long-term profitable growth. The economic dislocation caused by the pandemic is likely to generate a further increase in case referrals. The stock made a 52-week low and high of GBX 185.00 and GBX 617.60, respectively.

Considering the 100% increase in case completions, robust cash inflows, short-term uncertainties, bright long-term prospects, and support from the valuation as done using the above method, we have given a “Hold” recommendation on Manolete Partners at the current market price of GBX 201.50 (as on 27 January 2021, before the market close at 8:15 AM GMT), while we look forward to reviewing the rise in insolvencies.

*All forecasted figures and Peers information has been taken from Refinitiv, Thomson Reuters.

*Dividend Yield may vary as per the stock price movement.

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