As expected the company reported a thumping pre-tax loss, reflecting for the most part write-downs in its investments that occurred in the first six months of last year and which we were fully aware of. In fact, the carrying value of the remaining 15 cases on its books (consisting of antitrust and competition; patents and intellectual property; and commercial cases), which had a book value of $103m at the end of June 2015, is now $92.8m. Also, the decline in cash and receivables (money due for payment on claims awarded in Juridica's favour) from $46.3m at the end of June to $33.6m at the year-end mainly reflects the payment of an $8.2m cash dividend to shareholders at the end of last year, a sum worth 5p a share. Adjust for that capital distribution and net asset value per share declined by 10 per cent to 114.32¢ in the second half of 2015. In sterling terms, book value per share is 79.5p at current exchange rates which is hardly out of line with the end June 2015 figure of 86p once you then factor in the 5p a share dividend paid in the second half.
Of course, the favourable movement in exchange rates has helped prop up the sterling net asset value figures on translation and the fact remains that the value of the portfolio of outstanding cases still declined by 10 per cent in value in the second half of 2015. That said, cash and receivables account for 21.5p a share of spot net asset value of 79p which means that those 15 outstanding cases are in effect only being attributed a value of 21p in the current share price, or a third of their book value.
And it's the potential for a successful outcome in those remaining cases that sparked my interest in the company in the first place. That's because Juridica's board decided last year not to make any new investments apart from funding its existing portfolio of claims, and is seeking to return capital to shareholders following the completion of its investments. It's a sensible decision given that the company is simply too small to diversify and scale up its operations in this specialist niche area.
Despite the write-downs last year, which I was aware of when I recommended buying the shares, the fact remains that since inception in December 2007 Juridica has generated cash proceeds of $222m from 20 of the 30 investments made, of which 15 have been concluded, representing a return north of 30 per cent on its invested capital; and has paid out total dividends of 64p a share to shareholders, a sum equivalent to more than half of the gross capital it raised. So although there can be no guarantee that the outcome from the remaining litigation cases will match its past hit rate of success, the company has been clearly successful in selecting the right ones to back overall.
The bottom line is that with the remaining cases being attributed a value of only 33p in the pound in Juridica's current share price, I feel that the risk:reward still favours a positive outcome here and maintain a buy recommendation on the shares which are rated 45 per cent below net asset value. Buy.
I have published four columns today and 30 in the past three weeks, all of which are listed below.
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