Manolete falls into loss

It has been a taxing six months for Manolete Partners (MANO). In September, the insolvency litigation funder revealed there had been a “rare adverse decision” in the High Court regarding one of its large cases.

This resulted in a £2.3mn hit to pre-tax profits and cash costs of £637,000. Following a “cautious” reassessment, the value of around 280 of its ongoing cases has also fallen. Management blamed this on the difficult economic climate.

This has resulted in a disappointing set of interim results. Total revenue is down by almost 50 per cent, while the group has fallen into an operating loss of £5.3mn and no dividend has been proposed. To make matters worse, Manolete has also breached its leverage covenant with HSBC, but said it is confident that a new covenant package will be in place “shortly”.

It is often the case that litigation funders promise the earth, but fail to deliver any actual cash. Strangely, however, the opposite is true for Manolete this year. While total revenue has tumbled, realised revenue – ie turnover from completed cases, as opposed to estimated sums –  rose by 77 per cent to £13.6mn. Meanwhile, gross cash receipts from completed cases more than tripled to £15.7mn.

While this underlines how difficult it is to assess the performance of litigation funders in any one year, it is nonetheless an encouraging sign. The group has also reported a 34 per cent increase in new case enquiries as UK insolvencies keep rising, and it has teamed up with Barclays Bank to recover misappropriated ‘bounce back’ loans, which could prove a lucrative source of business. Meanwhile, the adverse judgment mentioned above will be challenged in the Court of Appeal. 

Investors who expected Manolete’s performance to take off in the wake of the pandemic are likely to be feeling disappointed, however. While insolvencies are picking up, new economic pressures are weighing on the value of legal settlements, which in turn weigh on Manolete’s earnings. Hold. 

Last IC View: Hold, 317p, 23 Jun 2022