The latest Investing Matters Podcast episode featuring Jeremy Skillington, CEO of Poolbeg Pharma has just been released. Listen here.
Fomo, from the annual report:
“ Realised revenues on completed cases were £26.8m, an increase of 76% (FY22: £15.2m) although FY23 contained an exceptionally large funded case completion of which £4.9m was recorded in realised revenue (total settlement £9.5m) – our second largest ever completed case and one where all the cash was received within just a few weeks of completing the case.”
And
“ 74% of total revenues derived from purchased cases (FY22: 93%) and 26% from funded Cases (FY22: 7%) – the large £9.5m case (£4.9m of which was Manolete's share) referred to earlier was a rare funded case.“
It’s very clear that the unusually high % of revenue from funded cases in 23 was due to this one case, and that this was realised revenue - Mano has already been paid.
Forensic I don’t think that is all that relevant, since only ~5% of Manos cases are funded.
Oldbutnowisa - I was wondering the same thing, but wanted to check myself in case it was just rose-tinted glasses. But yes, it would seem that if some portion of the industry is in turmoil after this ruling, it can only benefit operators who are less affected. It sounds like both Mano and LIT are in this category.
"Over 95% of Manolete's successfully completed cases are completed by way of a consensual settlement agreement with the defendant (often an individual previous company director). Very few end at a trial. The Board considers that the prospect of any party seeking to re-open a previously completed Funded Case as highly remote."
FoMo, isn't this pretty much saying that they think this is OK? (With the caveat that they're still looking into it and may update further)?
It's all speculation at this point. Manolete seem to be pretty sharp, and I'm sure they've had good advice and were aware of the possibility of this decision, but that doesn't mean their contracts are bulletproof.
As for clawback and/or future payments at risk - I'm absolutely not an expert, but at this point it seems like the best case scenario is that people will at least _try_ to get some of their money back. Even if they are unsuccessful (or only partially successful) it will be a big distraction for Manolete, lots of legal fees, etc.
A potential silver lining: if this causes turmoil in the funded litigation segment of the industry, could that drive claimants towards Manolete's established purchasing model?
Is that model at risk too??
Wait, I think I misread the articles. I don't see anything about funders having to pay back any revenues they made on cases settled before this decision. The articles all say that for cases that are still ongoing but have already had work done, there may be significant writedowns on that work. But again, MANO has relatively a few such cases.
I think the funded whale settled just in time!
Obviously not good, but may not be too catastrophic.
According to their report, 96% of their new cases last FY were purchased, not funded. So the fundamental business model shouldn't be too badly affected.
But in 2023 a whale of a funded case settled, accounting for £4.9m in realised revenue. I have no idea what kind of "clawback" will be possible here, but all the articles state that this is a definite concern. Presumably MANO is trying to figure out their exposure here before they update the market.
Does anyone know whether the cartel cases are funded? Seems like this supreme court case was based on the cartel cases, so I assume they are.
Unusual to have this much activity with no news. Not complaining though!
As "excuses" go, the government artificially shutting down your industry is a pretty good one! But the underlying need for these services didn't go anywhere, and that pent-up demand is exactly what we're seeing now.
This share does require patience because there is a significant time lag between an insolvency happening and Mano actually seeing any cash
1. some kind of alleged shenanigans occur
2. people attempt to resolve the dispute without resorting to law. Lots of emails and phone calls back and forth, waiting around for money that has been promised to actually appear, etc
3. the case will go to some independent insolvency practitioner who will review the case before bringing it to mano
4. mano then re-reviews the case to confirm it meets their criteria
5. mano actually litigates the case (or funds the litigation, or some combination)
6. many eventually gets paid
Each of these steps can take many months, so it's inevitable that there is a long lag after rebooting the industry.
So to say that Mano "should have been killing it" shows a misunderstanding of the business. And their latest update shows that they _were_ killing it in H2!
For me the big question is valuation. It seems like the market isn't sure how to value this company and it's relatively unusual business model. In 2019 the price averaged ~450 with revenues of ~14m, and a whopping net margin of ~33%. This put them on a PE of ~40, suggesting a huge amount of optimism - possibly justified by 2020's results, where revenue grew ~35%, and the net margin grew to an amazing 40%.
...and then the wheels came off during COVID, revenue growth went into reverse, and incomes went negative - not helped by the double whammy of the adverse decision plus the writedown based on how much they thought people could actually pay up given the state of the economy. So where does that leave us? If Mano is profitable this half / FY (which I strongly believe they will be), I suspect that multiple of 40 is long gone. What's a reasonable multiple? Is PE the right way to think about valuing this stock? That's why I was interested in the PBV argument that the OP started this thread with - shame they haven't followed up!
That was brief! I guess a lot of people are desperate to unload here...
Thanks Terry, this has confirmed that you have no genuine knowledge of or interest in XLM, and are just trying to cause trouble. Good to know!
There is a bull case worth making here too. XLM generated a ton of cash last year (£16M!). Half of that went on deferred considerations, which are mostly paid off now; the other half on R&D (websites). Over time these deferred considerations, plus the writedowns of the old business, will be flushed out of the system. More of the revenue will hit the bottom line as profit, and more of the cash will be available to.... pay as dividends?? XLM could be run as a fairly low lift dividend play. There will be good years, when States legalise and we get a spike, and/or the wider industry decides to push on the promotions for new customers, and leaner years, which 2023 is shaping up to be.
Another factor that could be big for XLM is AI. XLM is (mostly) in the business of generating quality sports-related content that also encourages users to place a bet. The key to its success is producing quality content that users actually engage with, under a brand that the users trust and keep coming back to. XLM already owns those brands; maybe it could use AI to generate the content at lower costs? To be fair I don't know how much of XLMs costs related to paying content creators, but "staff costs" account for 28% of revenue; any reduction would go straight to the bottom line.
Overall I do think XLM looks oversold. Even if it doesn't turn out to be a huge growth play (that feels unlikely at this point) it could be a meaningful dividend play, and I suspect it takes the market some time to switch from one mindset to the other.
Then again, I would love to know what bad new the market was already pricing in, given that today's announcement apparently wasn't already priced in!
I have a large holding in XLM, so please don't accuse me of "deramping", but I think it's important to see things realistically here.
First: this is not "MM manipulation". This share is a minnow, and doesn't trade high volumes, and simply isn't worth the MM's time to manipulate.
Second: £109M of XLM's assets - thats over 83% of the total - are intangible/goodwill, the majority of this coming from the websites they have bought. If it turns out that the business model is not as profitable as we all hoped, then those assets are worth far less than they are carrying for on the balance sheet today.
Third: while I agree that the "spikiness" was a known factor, the fact that the entire market seems to be in a slump is also very relevant, and is unrelated to the spikes.
What surprises / worries me is that the contents of this announcement weren't already priced in. As discussed, the spikiness should have been well understood, and a slump in the wider gambling sector seems like something that anyone watching the industry closely would know about - and would explain the steady downward trickle over the last few months. So why is this announcement a surprise?
Honestly, I'm feeling more and more on the fence about XLM. Here's a brief summary of the pros and cons, please add any I've missed!
Pros:
- many more states - including some whoppers - have yet to allow gambling -> room for growth
- company has almost finished it's turnaround & writedowns; almost entirely focused on new strategy
- generally in good financial health
- potential takeover target?
- a slump in the wider market should be temporary. Also things like MA not spiking like NY did seems reasonable given the timing (i.e. after the superbowl) - presumably all the would-be bettors will just join early next year instead.
Cons:
- the regulatory environment pendulum already seems to be swinging the other way - e.g. states adding laws banning revenue-share models
- there is no guarantee that the other States will follow suit. Many times States don't all adopt the same laws - that's kind of the entire point of having States!
- still yet to be seen what the "steady state" revenue will end up looking like, when there are no more spikes.
- presumably the market will reach saturation at some point? I.e., when there are no more people out there who want to place a sports bet, then what does XLM do? Just wait for the next crop of punters to turn 18/21/whatever-the-legal-age-to-gamble is? Or focus on convincing existing punters to sign up to multiple betting sites, each one paying a fee?
Good debate here.
Unhooked, I think this share 100% would have been counter cyclical, except that this cycle happens to be driven by COVID, and that came with an artificial cessation of insolvencies.
In many ways the strong recent results show that is _is_ counter cyclical! It will just take a while for both the bottom line and the share price to catch up.