AIM-listed insolvency litigation funder Manolete Partners continues to scale up rapidly, with turnover and profit both jumping significantly on the back of more than doubling the number of claims it has invested in.
In the year to 31 March, Manolete saw revenue grow 36% to £18.7m, with profit before tax jumping 40% to £9.5m.
As well as realising 54 cases – generating £10.2m – it invested £32.4m in 141 new insolvency cases, 139% more than the 59 in the 2019 financial year.
In the first three months of the current financial year, Manolete has already invested in 47 new cases.
Some 33 of the 2020 cases have already completed, generating 4.6 times their investment – Manolete has historically achieved a money multiple of 2.7. Its model is to buy the assignment of cases and run them itself, so technically it is not third-party funding.
Investors clearly like Manolete. It listed at 175p but has soared since, and has already recovered the price drop seen across the market in March.
The share price was up 10% at 560p at the time of writing, up 100p on where it started the year but shy of the high of 585p it hit in mid-May. It was down to 235p shortly before lockdown.
Information provided separately by Manolete to Litigation Futures recently showed that the size of cases it has taken on has increased substantially over the past year – several have multi-million pound values – while it has won 85% of cases.
At that time it had only lost one – with the rest aborted early at low cost – although earlier this week we reported on a High Court decision where it recovered just 2.5% of the £7m it had sought.
But chief executive Steve Cooklin said the case was listed in Manolete’s account at a fair value of £395,000, so the result was “hardly even material”.
“It’s all about being cautious in accounting,” he said. “Litigation can be freaky.”
There are four main case types: directors’ loan recovery (29% of all cases), misfeasance/director negligence (21%), breach of contract (14%) and transactions at an undervalue (14%).
Manolete has invested in cases referred by 140 different firms of insolvency practitioners (IPs) – no single firm represents more than 6% of invested cases – and it said every IP who has had a case backed by Manolete has always returned with new cases.
The company has been building up its team of in-house lawyers – it now has 11 around the country – and said this meant it was present at initial discussions on cases, rather than being a final option. As a result, it now accepts 30% of the cases it is approached with, far higher than commercial litigation funders.
Mr Cooklin attributed this, at least in part, to the success of going public in December 2018. “Our publicly listed status has also raised our profile, stature and credibility in the professional networks we operate in.”
Manolete estimates that each in-house lawyer could supervise around 25 live cases at any one time – the actual legal work is carried out by external lawyers – giving the company capacity to manage around 275 live cases at any one time. It currently has 201.
Mr Cooklin predicted it would soon reach that limit, however, but foresaw no problem with recruiting more. “Lawyers are queuing up to join us,” he said.
He added: “Despite the challenges of Covid-19, the activity levels within the business are at record levels, highlighted by the 47 new case investments (124% more than the same period last year) and 23 case completions (up from four in the same period last year) that the team has transacted in the first quarter of FY21.
“New case enquiries are also at all-time record levels, running at around double the rate we had this time last year. We entered FY21 with £8.4m of gross cash, a positive net cash balance and £12m of our HSBC revolving credit facility unutilised. All these factors firmly underpin our confidence in the current and future trading performance of the business.”
Mr Cooklin said the economic disruption of the coronavirus was likely to see new case enquiries increase further for the foreseeable future.
He told Litigation Futures that holding meetings remotely rather than in-person actually helped in some ways by taking “a little bit of the emotion” out of them.