Manolete sets the floor

Manolete Partners’ (MANO) share price has changed direction three times this year. In March, the stock was swept up in an indiscriminate sell-off, only for the market to recall that an insolvency litigation funder should do well in times of acute economic devastation.

Then, in July, the share price began another fall after an article on the website ShareProphets said the group was burning through cash and would soon need to raise equity. A rebuff from the Aim-traded company promptly followed, which chief executive Steven Cooklin said drew private praise from an individual at Burford bear Muddy Waters (a statement which the short-seller subsequently told us did not amount to an endorsement "in any way, shape or form").* Battered market sentiment continued to hurt the illiquid stock.

Half-year numbers for the six months to September may have finally set a floor. Although lags between case resolution and settlements continued to weigh on cash generation, new case investments climbed 69 per cent to 110, case realisations almost tripled, while the proportion of realised revenues (as opposed to fair value accounted revenues) made up more than two-thirds of the top line.

Peel Hunt, which expects adjusted earnings of 26p a share for the year to March 2021 and 29.9p in FY2022, said a recent realised gain of £4.1m from a case for HMRC “demonstrates that Manolete has developed a strong network with important partners”.

Although stalling solvency appointments and bankruptcies could impact referrals in the coming months, Mr Cooklin believes this amounts to “artificial dampening” of the market and that instances of fraudulently obtained emergency government funding could be a major source of growth in the next few years.

Improvements in free cash flow would help the investment case, which still looks reasonable. Buy.

Last IC View: Buy, 544p, 3 Jul 2020

*This article has been updated with Muddy Waters' response to Mr Cooklin's comment.