IMF (Australia) Limited (ASX: IMF) announced on 10 May 2012 that it expects revenue of $60 million and profit before tax of $42 million from settlement of the Centro case. The Centro settlement is the largest class action settlement in history, after the Aristocrat class action. Shareholders will recall that IMF was also the litigation funder in the Aristocrat class action.
The central premise of IMF's business model is to gain $3 for every $1 spent. This is reaffirmed in the Centro settlement, with IMF spending $18m and getting a return of $60m.
In our previous articles, we set expectations for IMF to achieve an average net profit per year of at least $24m. If the Centro settlement is approved and the results recognised in this financial year, then IMF will easily achieve our net profit expectations. Even if Centro is not recognised this financial year, the actual results are expected to come close to our expectations.
I have also estimated that after the Centro payback, IMF's cash will exceed $100m. This is more than sufficient to pay a dividend of at least 10 to 15 cents per share. If this happens, then our dividend expectations on IMF are fulfilled.
On 3 May 2012, IMF published its investment update with $1.535b case investment portfolio, of which $325m was expected to complete by June 2012. If we make a conservative assumption that the whole of $325m relates to Centro, this means that the current case investment portfolio stands at $1.21b.
We know await the results of further cases. The significant ones include Collyer Bristow, the Bank Fees case and Wyvenhoe.
The current market capitalisation of IMF at $1.45 is $180m. The downside is more than sufficiently covered by expected cash on hand and its remaining cash portfolio. The upside is an average of 30% per year for the next 5 years.
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Fool contributor Peter Phan owns shares in IMF (Australia) Limited. The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.