Manolete Partners PLC – Continued strong momentum into the second half of FY21

Manolete Partners PLC (LON: MANO) is a FTSE AIM Index listed Insolvency Litigation Financing Company. The Company was founded in 2009, and presently, it is the leading Insolvency Litigation Financing Company. It works with insolvency practitioners and their lawyers to maximise returns to creditors.

Rationale for Valuation – Speculative Buy at GBX 263.60

• During H1 FY21, the number of new case investments rose by 69% to 110 (H1 FY20: 65), which underpins the strong progress.
• From a technical standpoint, 14-day RSI stood at 40.40, which is supporting the upside movement.
• During H1 FY21, the Company achieved impressive triple-digit growth in revenues, and strong double-digit growth in gross profit and EBIT. It also continued outstanding investment returns yielding an average money multiple of 3.1 times (H1 FY20: 2.9 times) on the 52 completed cases (H1 FY20: 18 completed cases) with an average duration of 11.5 months (H1 FY20: 11.4 months).
• 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.

Key Risks

• 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: The Company 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.

Half-year results for the six months ended 30 September 2020 (10 November 2020)

 (Source: Company Website)

• During H1 FY21, there was a 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.
• Subsequently, basic earnings per share was increased by 49% to 11.8 pence (H1 FY20: 7.9 pence).
• 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 FY20.

One Year Share Price Chart

 (Source: Refinitiv, chart created by Kalkine Group)

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

Conclusion

The pipeline of new cases also continued to grow at a strong rate in the first six months. The strong momentum has continued into the second half of the year with total case completions already up to 62 as of 31 October 2020 and there are another 40 live cases scheduled for Alternative Dispute Resolution. 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. MANO entered the financial year 2021 with strong momentum and is confident that investment in cases portfolio will fetch attractive returns in the short and medium-term. The stock made a 52-week low and high of GBX 220.00 and GBX 617.60, respectively.

Based on the decent growth prospects and support from the valuation as done using the above method, we have given a “Speculative Buy” recommendation on Manolete Partners at the current market price of GBX 263.60 (as on 30 December 2020, before the market close at 8.20 AM GMT) with lower double-digit upside potential based on 13.76x Price/NTM Earnings (approx.) on FY21E earnings per share (approx.).

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

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

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