Juridica is a Guernsey-domiciled closed-end investment company with shares quoted on London's Alternative Investment Market (Aim). It invests in legal cases that plaintiffs may not have the money to pursue and takes a chunk of the damages. That sounds high-risk stuff, but Juridica is choosy about which cases it invests in, and the results are encouraging – so far it has never lost a case.
- Share price far below net asset value
- Flurry of cases close to settlement
- Cash for new cases
- Shares illiquid
- Cash flows lumpy and uncertain
Juridica only deals with commercial litigation, such as antitrust and patent disputes, and steers clear of class actions, personal injury or product liability. The tough part is assessing the chances of a case being successful. If the circumstances look favourable, Juridica supplies the finance to run a case, but the mechanics of conducting it are left to its clients and their teams of lawyers.
Most cases are in the US, where demand for Juridica's funds is especially strong because recourse to finance is correspondingly weak. In other words, litigation costs have been squeezed just like all corporate expenses. So companies are keen to have another party pay the costs of a case even though it means they'll get less of the damages awarded.
However, trading through the effects of the credit crunch was tough for Juridica. Settlement periods started stretching out because there was less public money available to run the US judicial system. There were delays in appointing new judges and reduced court time for civil cases as more criminal cases were heard.
In fact, it takes an average of four-and-a-half years for a case to be settled, so Juridica's early years – it was formed in 2007 – have been understandably bare. However, it has invested or committed $155m (£96m) to 23 cases, and many of these are now close to settlement. This year should see acceleration of settlements, with at least three antitrust cases likely to be concluded. The effect of just one settlement would be considerable for Juridica because, in each case, significant damages are being claimed; besides, if damages are awarded through a jury hearing, the amount is automatically trebled by the court, although most cases are settled before they get that far. Moreover, a further six trials, including five patent cases, are expected to be heard in the next 14 months. Typical investments (ie, case costs) range from $3m to $10m, with claims anything from $25m to $100m.
| JURIDICA (JIL) | ||||
|---|---|---|---|---|
| ORD PRICE: | 76p | MARKET VALUE: | £80m | |
| TOUCH: | 75-76p | 12-MONTH HIGH: | 97p | LOW: 75p |
| DIVIDEND YIELD: | 9.2% | PE RATIO: | 4 | |
| Discount to NAV: | 45% | NET CASH: | $43m | |
| Year to 31 Dec | Net asset value (¢) | Profit ($m) | Earnings per share (¢) | Dividend per share (p) |
|---|---|---|---|---|
| 2008 | 190 | 2.44 | 3.06 | 6.7 |
| 2009 | 195 | 16.48 | 16.7 | nil |
| 2010 | 186 | 4.66 | -7.1 | nil |
| 2011 | 225 | 7.19 | 31.4 | 7.0 |
| 2012 | see text | |||
| % change | – | – | – | – |
Normal market size: 2,00 Market makers: 5 Beta: 0.02 £1=$1.619 | ||||
So what sort of returns can shareholders expect from a successful case? The first full settlement was achieved last year, resulting in a payment to Juridica of $4.5m. There was another $12.5m for partial settlements in five other cases. Total cash gain from this $17m was $12.9m, and management rewarded shareholders with a 7p dividend – which generated a 9 per cent yield at the current price.
And Juridica still has funds to invest in new cases, with $43m in cash at the end of last year. Its initial flotation raised $80m and attracted some weighty institutional interest. Invesco Perpetual holds a 31 per cent stake, Baillie Gifford 16 per cent and Jupiter Asset Management 13 per cent. However, adding on a handful of smaller institutional stakes means the shares are difficult to trade.
