RBG shares hit all-time low after it writes off contingent work

Divers: Tough decisions

RBG Holdings – the AIM-listed business that owns the law firms Rosenblatt and Memery Crystal – saw its shares dive to an all-time low yesterday after writing off all of its contingent work.

With the group also suspending dividend payments to pay off debt, the share price dropped 31% to 17.4p, a long way from the high of 165.5p in July 2021. RBG listed in May 2018 at 105p.

Earlier this month, the group sold its litigation funding arm, LionFish, for up to £3.1m, having last year had to write off £4m after two of the cases it invested in were lost. It retained four of the eight cases LionFish was invested in.

RBG said in a trading update yesterday that the board had also reviewed the previous management’s strategy to use conditional fee and damages-based agreements (CFAs/DBAs) – new management took over at the start of 2023.

Over the past six years, Rosenblatt – which handles contentious work – has invested in 13 cases with a total cash investment of £17.4m. One of these cases accounted for £9.3m alone and, having taken advice, RBG said it has concluded that this claim would not be successful.

As a result, “the board has taken the prudent decision to further write down the value of all remaining cases on the balance sheet to zero”, including the four LionFish investments.

The total non-cash write-off is £13.3m, their current carrying value. Any successful outcomes from the cases will be returned to the group as revenue.

“This decision simplifies and de-risks the group’s balance sheet, providing greater visibility to investors,” it said.

Rosenblatt will continue to offer both CFAs and DBAs but they will not be carried as assets on the group’s balance sheet in future.

The update said that the group overall has “performed broadly in line with the board’s expectations, despite the challenging economic conditions”.

Its specialist sell-side corporate finance advisory business, Convex Capital, has a “strong pipeline” of 18 deals but “transactions are taking longer to complete as a consequence of the current economic environment”.

RBG said a number of major shareholders have told it they would prefer the group to accelerate the reduction of net debt and, as a result, the board has suspended paying dividends until it has “achieved a more sustainable level of net debt”.

“In the short term, repaying the outstanding term loan of £6.5m as at 30 June 2023 remains the priority.

“Additionally, the group’s revolving credit facility of £15m is set for renewal in April 2024 and the process of refinancing this is already underway. The Board is confident that this will be concluded well ahead of next April.”

Chief executive Jon Divers said the aim was to stabilise earnings and “achieve greater visibility”.

“We are committed to reducing the group’s debt as well as investing in growing our legal services businesses, Rosenblatt and Memery Crystal, which are both working on an increasing volume of client matters.

“We have a reinvigorated and highly motivated team, all pulling in the same direction. We have had to take tough decisions but are optimistic about the business outlook for the second half of the year and beyond and are committed to returning the group to prosperity.”

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