Manolete Partners PLC

London, United Kingdom-based Manolete Partners PLC (MANO) is an insolvency litigation financing company which invests in insolvency and insolvency-related claims and has completed investments in over 300 UK specialist insolvency cases. The revenue from operations is differentiated in two segments, namely Funded cases and Purchased cases.

Recent News
On 23^rd October 2019, the company announced that Steven Cooklin (Chief Executive), pledged ordinary shares of 3.4 million in the group as security against a £1 million of personal loan primarily to fund personal tax liabilities and the completion of his home renovation in London.

On 1^st October 2019, the company announced that Mark Wrenford Tavener would become the new Chief Financial Officer of the group, effective from 7 October 2019.

Financial Highlights (for the year ended 31 March 2019, £’000)

(Source: Annual Presentation, Company Website)

As unrealised gains on investments grew by 70% to £6.6 million (FY 2018: £3.9 million) and realised revenue grew 6% year-on-year to £7.1 million (FY 2018: £6.7 million), total revenues increased significantly by 30% to £13.8 million (FY 2018: £10.6 million). There were 84 live cases in progress as at 31 March 2019, a 47% increase (FY 2018: 57 live cases in the process) and new cases increased by 24% to 61 in FY19 (FY 2018: 49 new cases).

Profit before tax surged by 61% to £5.9 million(FY 2018: £3.7 million) and pre-tax profit margin also increased from 35% in last year to 43%, while profit after tax was up by 43% to £4.7 million (FY 2018: £3.3 million) with post-tax margin expanded from 31% in the prior year to 34%. Proforma earnings per share rose by 70% from 7.5 pence in the prior year to 12.7 pence, and cash reserves stood at £9.7 million as at 31 March 2019, with no debt recorded in the books.

Manolete Partners PLC witnessed a CAGR growth of ~111.61% in net revenue over the period of FY15-FY19 while normalised PAT recorded a stellar CAGR growth of ~206.05% during the same period.

Share Price Performance

Daily Chart as at October-28-19, before the market closed (Source: Thomson Reuters)

On 28th October 2019, Manolete Partners PLC shares were trading at GBX 440 at the time of writing before the market close (at 8:25 AM GMT), and remained same against the previous day closing price. Stock's 52 weeks High and Low are GBX 620/GBX 190.

Conclusion
If investments underperform against expectations, the group may be exposed to adverse cost liabilities, which could be exacerbated by the inability of the company to continually and successfully attract investments in the UK insolvency litigation market. However, the business of the company continued to grow at a decent pace as investment in cases were up by 72% to £18.2 million (FY 2018: £10.6 million), and 61 new case investments were made in FY 2019 (FY 2018: 49), representing a 24% increase.

The activity levels within the business were at record levels, and double-digit growth in revenue and EBIT were reported during the period. The insolvency market is a developing market with decent market share being captured by Manolete Partners PLC in the UK region. The company has forecasted a strong stream of new cases and seeks to deploy new funds from an IPO to grow its caseload of investments, which would help it to consolidate its leadership position.

Based on the healthy prospects, we have given a "SPECULATIVE BUY" recommendation at the closing price of GBX 440 (as on 25th October 2019).
 

Marshall Motor Holdings PLC

United Kingdom-based Marshall Motor Holdings Plc (MMH) is engaged in the retailing passenger cars and commercial vehicles. The group trades new and used vehicles; and offers after-sales services, such as part sales, body shop repairs, and servicing. The company has two main segments: Retail and Leasing. The group’ main attention is on leasing vehicles to end customers and fleet consumers. The Group operates 111 franchise dealerships cross 27 counties in England.

Financial Highlights (For the six months ended 30 June 2019, £million)

(Source: Interim Report, Company Website)

In H1 FY19, the company’s revenue surged by 1.8 per cent to £1,183.3 millionas against £1,162.9 million in the first half of the financial year 2018. The increase in the revenue was driven by an increase in the revenue from used car and aftersales businesses. The company’s LFL revenue (Like-for-like) surged by 0.9 per cent to £1,160.6 million in H1 FY2019 from £1,150 million in H1 FY2018. With the increase in the net operating expenses for the period, the company’s operating profit declined to £19.75 million in H1 FY2019 from £21.14 million in H1 FY2018.

The underlying PBT (Profit before tax) declined by 5.3 per cent to £15.2 million in H1 FY2019from £16 million in H1 FY2018. The Reported PBT (Profit before tax) declined by 9 per cent to £14.8 million in H1 FY2019 from £16.2 million in H1 FY2018. The underlying basic earnings per share declined by 6.8 per cent to 15 pence in H1 FY2019 from 16.1 pence in H1 FY2018. The company’s reported basic earnings per share declined by 10.4 per cent to 14.6 pence in H1 FY2019 from 16.3 pence in H1 FY2018. The dividend per share was up by 32.6 per cent to 2.85 pence in H1 FY2019 from 2.15 pence in H1 FY2018.

Share Price Performance

Daily Chart as at October-28-19, before the market closed (Source: Thomson Reuters)

On 28th October 2019, Marshall Motor Holdings PLC shares were trading at GBX 142.50 at the time of writing before the market close (at 8:25 AM GMT), and remained same against the previous day closing price. Stock's 52 weeks High and Low are GBX 178/GBX 122.60.

Valuation Methodology

*Peers: Halfords Group Plc, Cambria Automobiles Plc, Lookers Plc, and Vertu Motors Plc.

Conclusion
Although the company’s financial performance declined for the period, but its Top-line performance improved in the first half of the financial year 2019. Brexit continues to weigh on the business prospects, and the SMMT (Society of Motor Manufacturers and Traders) is forecasting a further modest fall in the new car sales in 2019. The supply-side issues caused by WLTP (Worldwide Harmonised Light Vehicle Test Procedure) should unwind in H2 2019, but this could remove some of the supportive elements seen in the used car markets.  The management’s confidence in its strong balance sheet is reflected in the important ongoing levels of investment in sites, renewed appropriate M&A, such as the recently announced purchase of Skoda franchises, as well as the dividend cover policy revision that allocates more cash to shareholders. Clearly, a more recessionary environment could hurt car retailers, but for the present, the group expects robust profitability growth against the assumed fall in volumes.

Marshall Motor Holdings PLC witnessed a CAGR growth of ~19.13% in revenue over the period of FY14-FY18 while net income recorded a stellar CAGR growth of ~10.01% during the same period.

Based on the decent growth prospects of the company and the valuation done using the above method, we have given a “Speculative Buy” recommendation at the closing price of GBX 142.50 (as on 25^th October 2019) with lower double-digit upside potential based on 7.34x NTM Price/Earnings (approx.) on FY19E earnings per share (approx.).
 
*All forecasted figures and peers have been taken from Thomson Reuters.
*The “Speculative Buy” recommendation is also valid for the current price as covered in the report (as on 28th October 2019).

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