Listed legal business hints at ditching litigation funding arm after losses

Foulston: Disappointed by LionFish

Shares in RBG Holdings PLC – which owns law firms Rosenblatt and Memery Crystal – dived by 23% yesterday after having to write off £4m because of its litigation funding arm.

Chief executive Nicola Foulston hinted in a trading update that the AIM-listed company may look to offload its litigation funding liabilities, talking about the need to “refocus” the group on its main professional services business.

Though the law firms were set to exceed board expectations for 2022, LionFish Litigation Finance has lost two cases it invested in and there will be no further appeals.

“As a result, LionFish will now have a non-cash write-off of £4m in 2022 and will, therefore, miss the board’s previous expectations of £2.3m profit. The actual cash loss associated with these cases amounts to £1.1m over the life of the investment.”

As a result, the group now expects adjusted EBITDA to be “materially behind current market consensus expectations for 2022”, at around £11-12m. RBG’s half-year results for 2022 put EBITDA up 32% to £6.8m.

RBG’s share price has had a tough time since listing in May 2018 at 105p and ended 2020 on 58p. However, it doubled in 2021 to 116.5p, having hit an all-time high of 165.5p in July. But it has been dropped since and yesterday fell from 87.25p to 64.5p.

The company said LionFish has £3.3m committed to other cases over the next two years. The first half results said LionFish had at the time committed £11m in capital to 11 cases, of which half had not yet been deployed.

Yesterday’s stock market announcement said: “The board has been reviewing its strategy with respect to third-party litigation funding through LionFish with a view to reducing the group’s ongoing exposure to the remaining committed funding. The group expects to make a further announcement after the year-end.”

It also owns M&A advisory business Convex Capital, which it said has “a strong pipeline of deals which remain in process”.

Group chief executive Nicola Foulston said: “I am very disappointed with the LionFish position. We are taking steps to address the ongoing exposure to this subsidiary.

“We will also look at the efficiency of the cost base so that in 2023 we continue to deliver strong cash generation and good yield.”

She said she would be looking to “refocus” the group on its primary professional services business. “We are seeing the benefits of the integration of Memery Crystal and Rosenblatt with improved operating efficiency driving higher margins.

“While there is some disruption from difficult market conditions, Convex continues to benefit from its model of deep deal origination around the demands of buyers for good businesses.”

She added that the board was “confident in the medium to long-term outlook of the business”.

Today, RBG announced that Ms Foulston has spent £160,000 to buy 250,000 shares for her SIPP (self-invested personal pension). It gives her nearly 11.8m shares, 12.3% of the company’s shares. 

In the first six months of 2022, RBG saw revenue rise 45% to £27m, with profit before tax up 11% to £4.4m.

Having paid an interim dividend of 2p after those results, the group said yesterday that “the strong performance in the professional service businesses” meant it would as planned announce a second interim dividend for the whole year, in line with its policy of distributing up to 60% of retained profits.

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