Member Info for TeelaBrown

Wow! Today's RNS gives details of the successful resolution of a dispute whereby LIT makes a profit of A$13.1 million. Together with the return of invested capital this gives A$18.4 million to be recycled into new investments.

A$18.4m is enough to fund another three disputes similar to today's resolution. The compounding that's occurring here is astonishing!

On 11/8/21 LIT reported a profit of A$4.0 million on the settlement of an Australian dispute.

To give these figures some perspective, the full year profit reported for the last financial year was A$12.9 million. We're barely five months into the current year.

My view is that the resolution of disputes will remain lumpy for some time, however, the increasing profitability of the company will provide support for the share price and provide a strong base for further capital appreciation.

Hopefully we'll recoup the share price losses of the last few days in short order.

I think the share price drop has been an overreaction to losing the mandate for managing Gresham House Strategic.

As Simon Thompson of Investors Chronicle has updated his recommendation (Thursday 14/10/21) he points out that this fall is a repeat buying opportunity and retains his target of 1100p.

The article points out that the transaction with Hardwood will increase cash to £69.5m (183p per share). Cash adjusted PE's for the next two years are 14.5 and 13.

It is my view that the cash will likely be invested in further ESG opportunities which will be more profitable than the management fees and growth from GHS.

Simon Thompson of Investors Chronicle has done another write up following Thursdays final results.

The target price has been nudged up to 520 from 500.

The article makes mention of the following:
72p cash per share;
Outline planning permission for the Luton site which (unnamed) brokers reckon will sell for around £11m before the end of the financial year;
Prospect of selling Booth's for around £10m;
Currently on an enterprise value to operating profit ratio of 14.5x, a 20% discount to engineering peers;
4p dividend;
Strong current order book.

To me it looks as though the board are taking cash from the subsidiaries they've improved with a view to buying another underperformer and turning that around.

On past performance, this would be a move I welcome.

In order to clarify the recommendation from Simon Thompson, here's the final paragraph:

"The shares have drifted since I upgraded my target price to 150p over the summer after my original 140p target was achieved (‘Backing litigation funding winners’, 13 July 2021). However, trading on a forward price/earnings ratio of 8 using the average of the three broker estimates, and priced on a modest price-to-book value, the risk is heavily skewed to the upside. Strong buy."

To me, this looks like he's putting it forward as a strong buy.

Make your own decision.

Simon Thompson of Investors Chronicle has produced an updated article following today's annual results.

He's retained his previous target price of 150p, however, the rating has been upgraded to STRONG BUY.

The article provides some positive interpretation of the annual results and utilizes upgraded forecasts from Arden Partners, Investec Securities and Canacord Genuity of pre tax earnings of A$37.7m; A$29m and; A$32.3m respectively. The range of forecasts is explained as the lumpiness of case finalisations.

The average of the three forecasts puts the shares on a forward PE of 8.

"This also means that LCM’s historic price-to-book value of 2.2 times materially understates the value held on its balance sheet given the group’s high returns on invested capital."

I'm quite pleased that I bought a few more shares this morning and look forward to the share price recovering back towards 150.

Simon Thompson has published a new write up of Gresham House.

He's raised his target to 1100p from 1000.

The basis of the raised target is the continuing increases in Assets Under Management, ESG credentials, fund raises and the additional benefits of the purchase of Mobius VCT's.

Looking back at Simon's track record regarding tips relating to Gresham House there's a pronounced pattern of achievement. I have little doubt that this latest target will be achieved.

Simon Thompson has published an update on his 2021 portfolio share tip of Downing Strategic Micro Cap @ 79.5p.

He doesn't give a target but believes the current 16% discount to NAV is too wide and should narrow.

The article gives brief overviews of
Hargreaves Services
Volex
Ramsdends
Duke Royalty
Real Good Food .

He's fairly positive about the prospects of each of the above mentioned.

I've taken the opportunity to add to my holding.

Simon Thompson of Investors Chronicle has done a further write up regarding MPAC.

The article reiterates the recent figures from the annual report regarding rising orders, increasing margins, cash levels and growth markets.

The article concludes"

"However, the shares still only trade on a 2021 price/earnings (PE) ratio of 17.5 (cash-adjusted 15.5 times), an unwarranted nine-point ratings discount to the UK engineering sector average and one that suggests my new target price of 700p is achievable. Buy."

Polygon have extended their 34p offer until 31st August.

The RNS they have published strikes me as odd.

They point out that the realisation of contingent assets (the various litigation proceedings) may take some time to resolve; may not pay out as much as anticipated; may not go in the company's favour.

They also point out the continuing cash expenditure as the claims are pursued.

And, the odd bit: Polygon would be unlikely to accept an offer for their shares should such an offer be made.

In effect Polygon are saying Watchstone shares value is decaying but they're happy to hold on. In fact, despite what they see as uncertain assets, they want to increase their stake in the company from the current 30%.

It's evident that they see further value in the Group. So do I. I'll not be selling my shares at 34p.

Once again, Simon Thompson of Investors Chronicle has published a short article regarding Litigation Capital Management.
There's nothing new in the article and he repeats that two thirds of the directly held investments are likely to mature in the next 15 months; a second fund will be raised once the current fund is fully deployed; at 120p the shares are on a PE of 10 for 2021/22.

He's marginally increased the target price to 150p from 140p

The 34p per share offer from Polygon Global Partners strikes me as bizarre. I'm trying and failing to find a rational reason for it.

I have thought for some time that Watchstone may be vulnerable to a takeover from a hedge fund. Such a fund may calculate the chances of success in the various aspects of litigation and choose to buy the company at a decent premium with a view to gaining a handsome gain for themselves in short order. I had never considered that the approach would be from a current shareholder at nil premium to the current market price.

Currently Watchstone has 40 million shares, Polygon now has 30% of these.

By reference to the annual report from December 2020 I can see that Watchstone had £16.7 million cash. That's equivalent to 36.3p per share, more than the 34p offer.

I also note that Watchstone has the current claims:
PwC. £63 million in regard to breach of contract and/or beach of confidence and/or beach of fiduciary duty and/or unlawful means conspiracy. PwC have filed their defence but the case is unlikely to be heard prior to H2 2022.

KPMG. Audit from 2013 that required accounts to be restated in 2014. I've seen several reports of auditors being sued for faulty work but can't immediately locate these.

VAT overpayment recovery regarding ingenie

A claim against Aviva Canada which is ongoing.

Success against PwC would result in a payment of £1.39 per share. Add that to the cash and we're looking at £1.75 a share.

Polygon wants to give us 34p!

I've not been able to quantify the cases relating to KPMG, VAT and Aviva Canada but they must have some value.

Polygon wants to give us 34p!

I've obviously missed something. I do recognise that none of the cases may go in favour of Watchstone. What do Polygon know that I don't? If they think the cases will crash and burn then they wouldn't be after more shares.

The best that I can imagine is that Polygon may think they can get a faster resolution of the cases at lower levels and that in order to do that they need to buy shares cheap.

Watchstone has three further shareholders with more than 3%
Beach Point Capital Management 14.96%
Sand Grove Capital Management 11.25%
M&G plc 6.34%

It's going to be interesting to see how these shareholders respond.

Personally I'm quite happy waiting, biding my time until the litigation issues run their course. So saying, I would be open to sell my shares to lock in certainty and reduce the wait. But at 34p?

Polygon now hold 30% of the issued share capital of Watchstone Group.

They have now pitched an offer at 34p for the remaining shares of Watchstone. I tend to think that they're perhaps looking to give private investors an escape route as Watchstone is no longer listed on AIM.

So saying, my view is that the offer is being pitched at a low level and is unlikely to entice any of the major shareholders.

The good news is, however, that Polygon think they can make a decent profit for themselves if they can grab more shares at 34p.

Watchstone have several court cases on the go which, in the fullness of time should give us a return considerably higher than this offer. Patience has been and will continue to be required.

Be patient.

I will not be accepting such a low offer.

Here's another year posted on Twitter by Mateus around 1.30pm 29/6/21:

"Another day, another all-time-high for Litigation Capital Management! I've just had another great conversation with management, which I hope to share with you tomorrow ?? stay tuned.

Financial year ends tomorrow."

Make of that what you will but I certainly view it as a positive.

Simon Thompson of Investors Chronicle has provided a further update regarding Avingtrans on 28/7/21.

The article raises the target to 500p.

In the article he quotes a sum of the parts calculation by Paul Hill founder of PMH:

It looks like he uses a 13x operating multiple.

Engineered pumps and motors division 211p
Process solutions and rotating equipment 195p
59% stake in Magnetica 37p
Luton land 34p
Cash 66p
Central costs -38p.

ST points out that Avingtrans is currently on PE ratio of 12, a 38% discount to its engineering peers.

I'm quite well loaded up here so won't be adding, however, I'm upbeat regarding prospects for the next 12 months.

Mateus has produced another short video at Funky Finance relating to Litigation Capital Management.

The subject matter covered is the compounding effect of reinvesting the recent money from the concluded New Zealand case (no mention of the appeal) and using this in the third party fund.

Very impressive.

He also hints at a further update regarding two of the other cases that are underway. I would guess it's two from: Carillon; Prairie Mining and; KPMG.

If you haven't previously looked at Funky Finance, don't be deterred by the name or deterred by Mateus's choice of garb. Have a look at YouTube, you've got nothing to lose.

I topped up last week at 106 having viewed the first video regarding LCM.

I've just followed a link from Twitter that's taken me to the LinkedIn page of Paul Hill, founder of PMH Capital Ltd.

Mr Hill has provided an analysis of Avingtrans. I don't have access to the full write up as I don't "do" LinkedIn.

Despite this handicap I was able to read one, very positive, page.

Here's an excerpt from that page:

"Plus having run the numbers (see attached), my ‘Sum-of-the-parts’ valuation comes out at 507p/share (370p today). With possible further upside to 669p, if LFL sales can accelerate from 5% to 10% pa. All underpinned by a multi-year orderbook, including several large, flagship contracts."

I don't know what Mr Hill's track record of pedigree in these matters is, however, his targets are quite ambitious.

The Investors Chronicle has published a further out of hours share tip from Simon Thompson relating to Hargreaves Services.

As a plot spoiler, the new target has been raised to 450p (from a target of 350 set in January). He rates the shares as a buy.

If I've read the article correctly he points out that the results in July will give:
Dividend of 20.2p resulting in a yield of 5.3%
PE ratio of 7.5
6% below book value.

He points out the two upgrades that occurred in April and the strength of the HRMS business and concludes the article

"Hargreaves’ earnings upgrade cycle has further to run and it’s reasonable to expect massive upgrades in due course.

In the circumstances, I am raising my target price to 450p. Buy."

It's difficult to disagree.

I'm feeling quite pleased with a top up I made last week at 381.

Simon Thompson of Investors Chronicle has released an update regarding one of his tips Alternative Income REIT.

He provides a review of the company's property holdings and rent collection.

The article points out that the shares, at 71p, are :
at a 15.5% discount to the EPRA NAV;
yield 7% which compares well to a sector average of 4.7%
have dividend cover of 1.25x

He has retained a target of 80p as the discount decreases although he does wonder why the shares might be at a discount to peers.

Simon Thompson of Investors Chronicle has produced another update on Checkit. The article "Operationally geared for outperformance" was published , out of hours, on Friday 30/4/21.

In summary, he's raised his target to 75p from 60p.

The article relates to "inflection points" where a company having been loss making becomes profitable and this profit ramps up earnings as all of the fixed costs become covered. His view is that Checkit are closer to their inflection point than investors currently think.

Edison have also produced an updated sum of the parts valuation for Checkit, once more using enterprise values as a multiple of sales for the two divisions of the company. Checkit BEMS is given a value with EV being 1x sales and Checkit Connect 4x sales.

The Edison method gives a sum of the parts valuation of 83p.

I think their methodology is sound, however, my view is that higher input values should be used.

Edison state that the software sector average EV/sales multiple is now 6.5 (it was quoted as 5.8 the last time they published). This is an increase of 14%.
When they do their sums for Checkit, they have not amended their multiple for Checkit Connect and have continued to use 4.

The Edison publication contains a very helpful table showing values for a range of EV/sales multiples. Using this I can see that a multiple of 4.5 for Checkit Connect would give a value of 90p for the company.

Applying the sector average (6.5) would give a value of 118.

So there you have it:
Simon Thompson target 75p
Edison sum of the parts value of 83p
Higher multiples using Edison's methodology of 90p and 118p

Whichever you choose, the message is clear: Checkit shares are currently undervalued.

Hi Yellowstone. you commented:

"CKT FY - inline with higher numbers guided in Feb.
Chairs statement particularly bullish on future prospects. Current year started strongly"

I think I've read slightly differently and see things even more positively.

10/11/20 Trading update
Performance ahead of expectations in Q3 FY21. Annual Repeat Revenue +30% compared to prior quarter.

11/2/21 Trading Update
Above expectations in Q4. ARR +46% to £5.7 million

29/4/21 Preliminary Results
A further upgrade to expectations of 11/2/21

I read this as a February upgrade being bettered two months later with today's preliminary results.

It's also interesting to note the buys that have come through after 1pm when the board have conducted a conference call.

There's also a broker nor from N+1 Singer which I can only read the first couple of lines saying :Strong performance exceeding our forecasts on every metric.

I think we'll be getting some upgrades fairly shortly.