Shares in AIM-listed insolvency litigation funding firm Manolete Partners (MANO:AIM) rallied 10% to 560p after it revealed a surge in revenues and earnings for the year to the end of March and doubled its full year dividend.
In its first year as a listed company, Manolete delivered a 36% increase in revenues to £18.7 million and a similar increase in earnings before interest and taxation (EBIT) to £9.8 million, maintaining its 52% EBIT margin. The firm also announced a final dividend of 3p per share against 1.49p the previous year.
Despite expanding its infrastructure rapidly as part of its growth strategy, net cash receipts from completed cases after fees and payments to insolvency partners were well ahead of costs.
As chief executive Steven Cooklin flagged, ‘We continue to deliver outstanding investment returns, yielding an average Money Multiple of 2.7x and Return On Investment of 174% on 257 completed cases since inception.’
On average the firm realised one case a week over the last year with an average duration of 11 months, and it has already completed 33 cases taken on in the last year at a Money Multiple of 4.6 times its investment.
It is currently running a record 201 live cases and with no further increase in costs forecast the outlook for cash generation is very positive.
New case enquiries are also at record levels, running at about double the amount this time last year, and their size is also increasing with many running to seven figures. Cooklin expects enquiries to continue growing ‘over the foreseeable future’ due to the economic disruption caused by coronavirus.
Nik Lysiuk, analyst at FinnCap, pointed out that litigation tends to increase in downturns, added to which Covid-19 is already leading to an increase in insolvencies.
Although the shares aren’t cheap, ‘the growth prospects are fantastic and as today’s results shows, there can be significant growth as a result of the company’s adept case management. There’s potential upside from the Cartel cases, which if successful, could fund amplified growth’ says Lysiuk.
Liberum analysts Jamie Donald and Rahim Karim believe that third-party funders such as Manolete are seeing ‘the start of a decade-long structural growth opportunity and will become the dominant share of a £750m per annum established market.’
‘Manolete should therefore continue to enjoy significant growth in the short and medium term, whilst delivering sector-leading returns’, they add.
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