IMF Bentham Ltd - The easy-going stock with some market-beating returns
Sep 18, 2015 | Team Kalkine
Poor FY15 performance, with more pressure coming from losses incurred in second half:
IMF Bentham Ltd (ASX: IMF) delivered a rise in gross income from cases improvement by 22% year-on-year (yoy) to $92.3 million in the fiscal year of 2015, but net income from cases fell by 42% yoy to $14.6 million during the period. This decrease was mainly due to four losses in the second half of FY2015, which is Bank Fees case in Australia (impact of $5.5 million), The National Potato case in South Africa (impact of $18.5 million), Desalination case in Australia (impact of $2.2 million) and a loss in the US (impact of $1.5 million). Accordingly the net profit after tax dipped 36% yoy to $6.3 million against $9.9 million in prior corresponding period (pcp). Net asset backing fell by 4% yoy to $1.11 in FY15 from $1.16 in pcp. Meanwhile, the group’s net cash rose 42% yoy to $81.9 million while Case Investment (Intangibles) slightly increased by 1% yoy to $99.5 million.
IMF Bentham NPAT & Portfolio Value (Source: Company Reports)
Strong funding track Record:
IMF Bentham’s witnessed a strong growth in US cases, which increased to 31% of the investment portfolio from starting of 2011. Around 25 cases have been funded since the group’s inception in US, wherein five of these cases have now been completed while additional two are partially completed, leading to 6 matters producing income to the Group. Meanwhile, the claim value of the remaining cases funded in the US at 30 June 2015 reached $620 million as compared to $322 million in the corresponding period of last year. USGross revenue from completed cases to date reached $41 million while the net profit stood at $20 million (since the inception of US business). The firm is also building a platform to develop more offshore expansion. IMF funded three cases in Hong Kong, while UK operations recognized with conditional funding of first case (against Tesco). IMF delivered an overall revenue of $1.63 billion till June 30, 2015 with $1037 million generated to Clients (64%), $591 million which includes $206 million reimbursement of costs (13%) and $385 million net revenue to IMF excluding overheads (24%). IMF delivered a return on investment of 158% while 175 cases were undertook and completed from its listing. The group’s average investment period is of 2.4 years.
IMF’s track record to 30 June 2015 (Source: Company Reports)
Strategy ahead:
IMF would be focusing on onshore growth opportunities going ahead, by focusing on the insolvency market through new products in FY16. Meanwhile the group intends to build a larger and more diversified domestic business given its case selection and risk management expertise. As per the offshore growth opportunities, IMF intends to leverage the rapidly changing third party litigation funding in both the US and the UK/Netherlands over the past five years and has also been accepted as a funding alternative in these countries. IMF had built its presence in New York, Los Angeles and San Francisco while made a Joint venture arrangement to fund European litigation, having a focus on UK and Netherlands since last year. Funding three cases in Hong Kong would drive potential growth in Asia. IMF also has a competitive edge with a solid experienced litigation funding team, as only two other litigation funds are competing for multi?national leadership in Australia.
Stock Performance:
IMF Bentham’s shares have corrected over 34% in the last six months as the group’s second half of 2015 was affected by four losses. On the other hand investors need to note that IMF has only lost 10 cases since listing in 2001 which is just 6%. The group is building business to deliver a new strategic phase of growth international expansion, diversification and capital management. IMF is also continuously growing the investment portfolio which is above $2 billion of the claim size. Around 21 new cases were funded in fiscal year of 2015 with committed funds of $54 million. The group is undertaking more new cases ahead and estimates over 37 new cases in fiscal year of 2016 with committed funds of $86 million and 54 new cases in fiscal year of 2017 with committed funds of $107 million. For the fiscal year of 2018, IMF expects 61 new cases with committed funds of $123 million. Results from two recent USA cases seem to enable IMF to recognize revenue of USD 1.3 million and USD 4 million after capitalized overheads but before tax. Moreover, IMF is a clear market leader in Australia having over 69% market share, despite competition. Having a strong dividend yield of 6.9% and a stable pipeline, we believe that the stock has the potential to rise higher in the coming months.
IMF Daily Report (Source: Thomson Reuters)
Accordingly, we recommend a “BUY” to the stock at the current price of $1.46.
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