Shares in specialist insolvency litigation funder Manolete Partners slumped by 15% on Friday in the wake of a “rare” adverse High Court ruling and concerns over the wider economy.
As a result, investors were told that Manolete expects to announce a pre-tax loss of around £5m for the six months ending 30 September, “the large majority of which will be due to the adjustment of unrealised revenues and unrealised profits”.
Manolete’s share price peaked at 565p in May 2020, due to the anticipation of business failures after Covid hit, but has since fallen steadily. It closed on Friday down 214p.
The “surprising decision” came in one of its larger cases, which the company invested in three years ago but declined to name. Manolete has applied for permission to appeal to the Court of Appeal for the first time in its 13-year history. [Note: On 23 September, Manolete announced it had been granted permission to appeal.]
Chief executive Steven Cooklin said the company had taken “a cautious stance” by reducing the carrying value of the case to zero until the final outcome of the appeal process was known. This means a £2.3m reduction in pre-tax profits. The cash costs paid out on the case to date are £636,756.
“Separately, reflecting the widely reported deterioration and challenges presenting in the UK macro-economic climate, the board has taken a more prudent view of the valuation of the company’s c.280 ongoing litigation case investments.”
But Manolete said its business nevertheless “continues to operate well”, with gross cash generation from completed cases in the first five months of the period at a record £15m – it was £15.6m for the entire year ended 31 March 2022.
“This strong cash performance enabled the company to repay a net £3.7m of indebtedness during the first half of this financial year. Furthermore, unaudited realised revenues, on completed cases, for the first five months of FY23 were 175% higher at £10.6m (FY22: £3.9m).”
The funder reported too that, since the UK insolvency regime returned to normal on 1 April, “after a near two-year suppression of insolvencies by the government” in response to Covid-19, new case enquiries were up 24% compared to the same period last year.
It is also working closely with “blue-chip strategic financial services and government entities, which may lead to a material involvement in the recovery of monies loaned to UK SMEs under the Bounce Back Loan schemes”.
Mr Cooklin said: “I am optimistic that the second half of this financial year and beyond will see much improved trading results.”