Manolete Partners Plc (LON: MANO)

Business Overview
Manolete Partners Plc is a London-headquartered insolvency litigation financing company which invests in insolvency and insolvency-related claims.

Recent News
On 9^th March 2020, the company announced that its Non-Executive Director, Dr Stephen Baister, purchased 7,382 ordinary shares of 0.4p each in the Company at an average price of 338.71p per ordinary share on 6^th March 2020.

Excellent Progress in the Financial Performance for H1 FY2020
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 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 company’s reported EBIT increased by 37 per cent from GBP 3.3 million in H1 FY2019 to GBP 4.5 million in the first half of the financial year 2020.  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 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 5.6 pence in H1 FY2019. Interim dividend per share proposed of 0.5 pence.

Share Price Performance

Daily Chart as on 12^thMarch 2020, before the market closed (Source: Thomson Reuters)

On March 12, 2020, at the time of writing (before the market close, at 11:58 AM GMT), Manolete Partners Plc shares were trading at GBX 280.25, down by 3.36 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 620/GBX 250. 

From the technical standpoint, 14 days-Relative Strength Index of the stock is hovering near the oversold zone, which is strengthening the upside move.

Valuation Methodology


Risk Factors
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 Group operates in a regulatory environment, any change in regulations or government policies could affect the overall business of the company.

Conclusion
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. 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.

Based on the decent fundamental prospects and support from valuation done using the above method, we have given a “Speculative Buy” recommendation at the current price of GBX 250.72 (as on 12th March 2020 at 1:55 PM GMT) with lower double-digit upside potential based on 16.94x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).

Litigation Capital Management Ltd (LON: LIT)

Business Overview
Litigation Capital Management Ltd is an Australia based Litigation Finance and ancillary services group. The company is the first litigation funding group and has assisted companies and individuals.

Recent News
On 10^th March 2020, the company announced that the first close of a new third party fund of up to US$150 million, LCM Global Alternative Returns Fund (the Fund) had completed.

Financial Highlights – Financial Year 2019
For the financial year ending 30th 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. 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 basic earnings per share of 15.24 cents in the financial year 2018.

Share Price Performance

Daily Chart as on 12^thMarch 2020, before the market closed (Source: Thomson Reuters)

On March 12, 2020, at the time of writing (before the market close, at 1:13 PM GMT), LIT shares were trading at GBX 50, down by 12.28 per cent against the previous day closing price. Stock's 52 weeks High and Low are GBX 117.50/GBX 46.26. 

From the technical standpoint, 14 days-Relative Strength Index of the stock is hovering near the oversold zone, which is strengthening the upside move.

Valuation Methodology

*Peers: Grenke AG, Pargesa Holdings SA, Orchard Funding Group Plc, 1pm Plc and Bufford Capital Ltd.
*Currency exchange rate taken for 1 AUD = 0.5019 GBP.
 
Risk Assessment
The company operates in multiple geographies, and its profits can be impacted negatively due to 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.

Conclusion
The group’s top line accelerated in FY2019 as compared to FY2018 data. The company needs to manage its operating and non-operating cost-effectively to improve its bottom line. The group 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 then to capture more market share and is monitoring opportunities to enter 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.

Based on the decent fundamental prospects and support from valuation done using the above method, we have given a “Speculative Buy” recommendation at the current price of GBX 47 (as on 12th March 2020 at 4:32 PM GMT) with double-digit upside potential based on 12.55x NTM Price/Earnings (approx.) on FY20E earnings per share (approx.).
 
*All forecasted figures have been taken from Thomson Reuters.

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