Pandemic slowdown still weighing heavy on Manolete

When the pandemic hit, Manolete Partners (MANO) was initially expecting a healthy uptick in business. But thanks to the UK government’s economic interventions, things didn’t quite work out that way.

In June 2020, policymakers enacted the Corporate Governance and Insolvency Act in an effort to protect employment and businesses. This led to a fall in corporate insolvencies – thereby shrinking the pool of new cases from which Manolete could draw. The changes put in place by the bill were wound down by the spring of 2022, but the group’s recovery is still in progress and its trajectory is uncertain.

In the year to 31 March, Manolete recorded 159 new case investments (down from 198 in 2021) and its revenue fell by more than £7mn to £15.2mn. However, it also completed a record 139 cases – four more than the prior year. Consequently, the cash it received from completed cases improved from £6.8mn to £8.9mn.

Net debt still managed to grow by £4.5mn after business expenses, new investments in cases, tax and interest were factored in, although the company said a large case  completion after the year-end would reduce this figure significantly. Broker Peel Hunt has reduced its earnings forecasts for Manolete to allow for uncertainty in the recovery process. Its target price is 310p, targeting a ratio of 15 times earnings for the 2025 financial year. 

FactSet broker consensus sees Manolete achieving a forward PE ratio of 32.2 times in the coming financial year – indicating that analysts aren’t bullish about near-term prospects. Improvements in cash generation are positive, but there’s still work to be done to get the firm back on track. Hold. 

Last IC View: Buy, 317p, 10 Nov 2020