Juridica (JIL) came to the Alternative Investment Market (Aim) at the end of 2007, and its portfolio of investments is now really starting to generate a serious return. The company provides finance for civil litigation - primarily in the US - for plaintiffs who feel unable to pursue a legitimate claim, whether because of the cost involved or the time it would take up. Juridica steps in to provide the finance and takes a fee from any awards won, and, of course, it only takes up cases where it believes there is a very good chance of winning.
- 14p of dividend income pencilled in
- Shares rated cheaply against rivals
- Cash to invest in new cases
- Plenty of potential realisations in the pipeline
- Shares illiquid
- Lumpy cash flow
Only cases of commercial litigation are handled, like patent violation and antitrust actions, and while the company provides the finance, the mechanics of the actual case are left to clients and their lawyers to run. The trick is to select winnable cases and, so far, Juridica has been successful in doing this. Having raised a total of £115m, selling shares at 100p at float and then at 120p in April 2009, the company has returned $48m (£30m) to shareholders while growing net asset value (NAV) - broker Peel Hunt estimates NAV will be at 149p a share by the year-end, prior to some big dividend payouts.
When Juridica collects from a successful case, its policy is to pay actual net cash profits to shareholders. While this means profits and dividends are very lumpy, the policy has begun to result in some handsome payouts. For instance, $17.5m of cash proceeds from settlements, which Juridica expects to receive by the end of the year, will fund a 10p a share dividend in early 2014 for shareholders on the register on 13 December. What's more, further partial settlements of $12.5m were reported in August, which should be arriving by the end of December, so the board is considering a further payout of at least 4p.
But this is peanuts when considering that Juridica currently has around $161m (£100m) tied up in its portfolio of 21 litigation cases, and the gross internal rate of return from completed investments is currently running at 82 per cent. As these cases mature - the average case age is about five years - the chances of settlement increases. Indeed, management has told shareholders it "believes the company will continue to see strong cash returns during the coming 12 months". The group also has cash on the balance sheet to plough into fresh cases, and where appropriate, to top up its investment in ongoing trials. It made supplementary investments of $656,000 on two cases in the first half.
| JURIDICA (JIL) | ||||
|---|---|---|---|---|
| ORD PRICE: | 150p | MARKET VALUE: | £157m | |
| TOUCH: | 149-151p | 12-MONTH HIGH: | 154p | LOW: 89p |
| DIVIDEND YIELD: | 8.7% | PE RATIO: | 7 | |
| PREMIUM TO NAV: | 5% | NET CASH: | $13.5m | |
| Year to 31 Dec | Net asset value (¢) | Pre-tax profit ($m)** | Earnings per share (¢) | Dividend per share (p) |
|---|---|---|---|---|
| 2009 | 195 | 16.5 | 16.7 | nil |
| 2010 | 186 | 4.66 | -7.10 | nil |
| 2011 | 218 | 7.19 | 31.4 | nil |
| 2012 | 220 | 12.5 | 35.9 | 13.0* |
| 2013** | 231 | n/a | n/a | n/a |
| % change | +5 | |||
Normal market size: 5,000 Market makers: 5 Beta: 0.12 *Paid on 4 Jan 2013 and excludes a special dividend of 7p paid in Feb 2012 **Peel Hunt forecasts, underlying profit figures £1=$1.61 | ||||
The company has also beefed up its patent operation by taking a $2m strategic stake in ipCreate. The idea here is that Juridica will use ipCreate's special skills in developing and acquiring strategically complementary patents to enhance its current and future patent and intellectual property investments. And, as chairman Richard Fields pointed out, forming a strategic alliance was the best way of acquiring the expertise needed.
Juridica attracted some weighty investors when it floated, including Invesco Asset Management, Baillie Gifford and Jupiter Asset Management, which together with other institutional investors hold around 80 per cent of the shares, so they won't be that easy to trade. The company also charges a hefty 2.5 per cent management fee and a performace fee on top, and the practice of the case financing itself is not without controversy, which means the potential of regulatory risks.
