Time to be patient
Specialist Insolvency Litigation firm Manolete Partners MANO has updated the market on both the outcome of one of its largest cases and the wider UK macro-economic climate.
Manolete said today that it had unfortunately “received a rare adverse decision in the High Court on one of its larger cases”, and that it would now be prudently writing down the carrying value of this case to zero thereby impacting FY23 PBT negatively by £2.3m.
Equally due to the much tougher economic climate, the Board has surgically reviewed all its other 280 ongoing cases & decided to reduce the carrying value of some of these investments too.
The upshot being that in aggregate, 1H23e PBT (Mar y/e) is now projected to fall to -£5m Vs Peel Hunt’s previous +£5m estimate and 1H22a PBT of +£4.5m.
That said, it isn’t all bad news:
Firstly, the underlying business is performing strongly., characterised by excellent cash generation (ie +£15m YTD’23 vs £15.6m for entire FY’22), and increasing demand with “new case enquiries 24% higher than for the whole of H1’22”.
Indeed, YTD’23 realised revenues on completed cases are up 175% at £10.6m vs LY £3.9m.
Secondly, MANO is also working with several strategic financial services entities, in order help them recover those loans under the Government’s £46.6bn Bounce Back scheme (BBLS) that may have been abused by SMEs.
View from Vox
In my opinion, the second point above represents a significant opportunity for the group, especially since there might be up to £4.9bn of BBLS losses due to fraud/error with c. 18,000 loans already identified as ‘suspected frauds’.
Ok, so what does this all mean?
Well clearly this morning’s news is a shock to both the company and the market, with the shares down nearly 20% in early trading. However, beneath the headline profit reset, MANO is trading well & set to benefit from 3 other major tailwinds:
- Recession induced demand, where UK insolvency volumes are already above pre-Covid levels.
- Clearing the pandemic backlog.
- Secular growth of the 3rd party Insolvency Litigation model vs traditional self-model of Ips.
Consequently, putting all this together and looking past the next 12 months, I still reckon the company should be able to deliver £14m of EBIT by FY25. Which on a 10x multiple would generate a theoretical valuation of 295p/share.
Time to be patient.