Analyst comment for Manolete Partners
Financial crises tend to upturn many ‘hidden stones’ with Warren Buffett once famously saying “only when the tide goes out, do you discover who's been swimming naked”.
Similarly today the sea seems to be receding fast, ahead of a possible wave of UK insolvencies. Why?
Well, not only did the government withdraw most Covid creditor protections on 1st Oct’21. But also 10 year Gilt yields are rising (>1%) & there’s acute cost pressures too (re energy, labour, freight & raw materials) across several sectors (eg power suppliers) – which are forcing many firms to the wall.
Elsewhere, HMRC plans to be tough on anyone who’s fraudulently claimed pandemic stimulus cheques. And it’s not ‘out the question’ either that the Bank of England has to lift interest rates &/or stop QE sooner than predicted.
Add all this up, and you have potentially a ‘perfect storm’ of insolvencies coming down the track, alongside a backlog of cases which were temporarily delayed due to the pandemic (see chart).
Enter , the UK's #1 3rd party 'Insolvency Litigation Funder'. MANO buys c. 90% (& hence controls) of the cases it handles (from licensed Insolvency Practitioners) - & is ideally placed to benefit from any future surge in corporate bankruptcies. Particularly where they might involve some degree of director/owner malfeasance, say if the firm has gorged more on ‘BounceBack’ loans than even Zebedee.
Current (y/e Mar) trading is in line with expectations (Peel Hunt Est FY22 EBIT of £7.0m), with H1’22 case RoIs (154%) & durations (11 months) consistent with historical norms. Here it typically takes c. 2 years to settle most cases (>90% are out of court) & collect all the agreed cash.
CEO & founder Steven Cooklin adding: "September saw the highest level of new enquiries (50) since July 2020. We also witnessed a strong recovery in new signed cases – [up 50% MoM]. [However we are] still far below [pre-pandemic] levels, & anticipate strong growth in the months ahead."
So with ‘green shoots’ already blossoming, I reckon MANO can achieve £15m of EBIT in FY24. Which on a 14x multiple & adjusting for £7m of net debt, would equate to a theoretical price of 460p/share.
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