- Firm suffers ‘adverse ruling’ on 2019 case
- First half losses seen at £5 million
- Underlying trading well ahead of last year
Shares in litigation finance provider Manolete (MANO:AIM) plunged 15% to 213p, close to a 12-month low, after the firm warned it would report a first half loss of around £5 million.
Roughly half of the loss is due to the write-down of the full value of one large case and half is due to the board taking ‘a more prudent view’ of the rest of its portfolio.
RARE SETBACK
In a surprise development, the High Court has ruled against Manolete on one of its large outstanding cases from 2019.
While the company has applied for permission to appeal against the decision, it has taken the decision to write down the full value of the case in its results for the six months to September.
The impact of the writedown will be a £2.3 million hit to pre-tax profits, of which the cash costs paid out on the case amount to around £640,000.
In its results for the year to March 2022, the firm noted that the ‘vintages’ of 2017-18, 2018-19 and 2019-20 all had total case recoveries of ‘well over £10 million per year’ and IRRs (internal rates of return) ranging from 122% to as much as 483%.
Chief executive Steve Cooklin said the board and its legal advisors were ‘surprised and disappointed by the very rare adverse initial judgment that we received’ and that for the first time in its 13-year history the firm would ask for the decision to be referred to the Court of Appeal.
Historically, most cases funded or owned by Manolete take less than a year to complete and over 90% are settled before they even get to court so today’s news is a big surprise.
However, the firm has taken a cautious approach and written the carrying value of the case to zero until it knows the outcome of the appeal process.
PRUDENT VIEW
Meanwhile, in a reflection of the ‘widely-reported deterioration and challenges’ facing the UK economy the firm has decided to reduce the valuation of its roughly 280 ongoing litigation case investments.
The combined effect of the one-off adverse decision and the broad-brush approach to its existing case load means the firm is forecasting a pre-tax loss of £5 million for the first half.
This is despite realized revenues on completed cases from April to August rising 175% on the same period last year, from £3.9 million to £10.6 million, and cash generation of £15 million compared with £15.6 million for the whole of the year to March 2022.
Moreover, new case enquiries are already up 24% compared with the whole of the past financial year after UK insolvency regulations returned to normal after two years of government intervention.
‘Our key forward-looking performance indicator of new case enquiries is now showing strong signs of recovery. I am optimistic that the second half of this financial year and beyond will see much improved trading results’, said Cooklin.
