Shares in Litigation Capital Management have slid by a third since March last year, and recent events have done little to restore investor confidence. The group’s share price wobbled when fellow funder Burford Capital said it might have to restate the value of its legal assets and the market was unimpressed by LCM’s half-year results, which revealed an adjusted loss of A$5.5mn (£3mn).
The group’s management team seem intent on buying the dip, though. Chair Jonathan Moulds has been building his stake in recent months, and this culminated on March 17 when he bought £1.2mn of shares for 71.35p each. He now owns 4.4 per cent of the issued share capital, compared with 1.3 per cent this time last year.
Chief executive Patrick Moloney bought £112,000 of shares on the same day, taking his stake up to 8.76 per cent.
Management’s confidence is not necessarily misplaced. LCM’s interims may have underwhelmed the market, but they revealed two important post-period events. First, an Australian class action — funded off LCM’s own balance sheet — came good, producing an A$5.8mn gross profit. Second, a claim against Carillion’s former auditor KPMG settled, and is expected to result in A$6.3mn of gross profit.
A number of other cases are awaiting judgment or award, including three “direct” investments — that is cases which have been funded off LCM’s own balance sheet, without the involvement of third party funds.
LCM’s next set of results could therefore be significantly more impressive, and this isn’t reflected in the group’s lowly valuation: LCM trades on a forward price/earnings ratio of just 4.9, according to FactSet.
If there’s one thing we have learnt about litigation funders, however, it’s that courts are unpredictable and cash flow is extremely lumpy. Even when the signs are good, it’s unwise to count a funder’s chickens before they have hatched.
CLS Holdings family keep faith
An insider at European office landlord CLS Holdings has bought £1.86mn in shares after it swung to a hefty loss in its results for the last calendar year.
Last week, a person closely associated with Anna Seeley, deputy chair, non-executive director, and daughter of CLS’s late founding shareholder Sten Mortstedt, bought 1.4mn shares at 133p each.
Seeley’s purchase increases the Mortstedt family’s grip on the company. The Sten and Karin Mortstedt Family and Charity Trust currently owns 51.5 per cent of CLS, while family member and non-executive director Bern Mortstedt owns a further 6.5 per cent.
The decision to invest follows a disappointing set of results for CLS. Its price has dropped by 10 per cent since it posted an £82mn pre-tax loss for the 12 months to 31 December thanks to a valuation hit, falling net rental income, and increasing vacancy rates.
CLS suffered from a 6 per cent drop in its European Real Estate Association (EPRA) net tangible asset (NTA) value, amounting to a £136.5mn devaluation, which it blamed on “the rising interest rate backdrop” reducing buyers’ budgets. Operationally, profit from rental income (before revaluations) was down to £75.9mn from £77.4mn due to flat revenue and increased costs.
Meanwhile, the amount of unlet space in the portfolio by value grew from 5.8 per cent at the end of 2021 to 7.4 per cent, driven by the vacancy of its UK assets almost doubling from 5.4 per cent to 10 per cent. The company pinned some of this on tenants “downsiz[ing] their space in response to changing working patterns among their staff”.
Despite the results, house broker Liberum said it remained bullish about the company, with its fall in EPRA NTA being less than expected. It also said the shares were well priced “given CLS’s long-term track record of value creation”.