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IMF releases lacklustre results, but that’s not the whole story

IMF (ASX: IMF) has announced 2013 results, highlights include:

  • Net income from cases down 66%
  • Net profit after tax down 68% to $13.8m
  • Annual dividend halved to 5c (ff)
  • Earnings per share down 68%
  • Net asset backing up 12% to $1.02
  • Value of investment portfolio up 33% to $1.63b
  • Cash up 12% to $70m

Superficially, a poor result. Or is it?

Litigation funders such as IMF are best seen as portfolio managers, with the investments being court cases. Earnings vary considerably year to year, as cases are finalised or extended. On average, it takes two to three years for a class action to finalise.

In their presentation, IMF expects possible completions of $765 million in 2014 and $740 million in 2015. Potential income (not profit) from these expectations is $130 million in 2014 and $126 million in 2015. Net after tax profit as a percentage of income averages 30%; so potential profits of $39 million and $38 million are in play. No allowance is made for any new cases.

Meanwhile, US subsidiary Bentham Capital is gaining positive traction and expansion into the UK is being considered. Due diligence into possible actions against rating agencies and related parties is well advanced and it looks very likely significant actions will be commenced.

Investors have welcomed the report, sending the share price up to $2.04. In this Fool’s view, this confidence is not misplaced and IMF is a solid long-term buy.

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Motley Fool contributor Peter Andersen owns shares in IMF

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