Bentham IMF Limited (ASX: IMF) today announced that it "proposes to fund claims of certain Forge shareholders against Forge and/or its directors and officers." As everyone should know by now, Forge Group Limited (ASX: FGE) collapsed recently, on the back of poor risk management, highly questionable disclosure and overly generous incentives to the CEO.
Although the share price has barely moved since my purchase, becoming a shareholder in Bentham IMF is already beginning to pay off, because I'm proud to be a part owner of a company that fights for justice. Admittedly, Bentham IMF will only go ahead with the claim if Forge is likely to have the ability to pay and if the likelihood of winning is sufficient to justify the risk.
However, at the end of the day, there is more to life than money and the satisfaction I get out of knowing that Forge shareholders have a chance of getting some of their money back is valuable in itself. Of course, there is also the fact that demand for Bentham IMF's services is driven by corporate misconduct. As much as I hope I'm wrong (for society's sake), I'm forecasting that corporate misconduct will continue until society collapses and I expect I'll make some capital gains in due course.
The funny thing about Bentham IMF is that the share price moves almost every time they announce a new case, or the results of an existing case, as if the intrinsic value of the business is dependent on a single case. Of course, if your investment horizon is one year, that might be true, but for long-term investors the real question is whether the company will be able to successfully expand its operations overseas.
I expect the company will pay a fully franked dividend of 5.8% at current prices. However, the dividend tends to vary widely because earnings are lumpy and Bentham IMF needs to maintain a hefty cash reserve so that the big companies it sues don't get any ideas about bleeding the litigation funder dry. So don't assume that they can run down their cash reserves much or anytime soon, despite the fact that the company recently reported $85 million of cash on the balance sheet.
The company did raise capital not long ago at $1.70 per share in order to ensure they could redeem all the convertible notes on issue and fund their operations in the USA. Over 2.2 million of those notes were converted rather than redeemed, so there is a little extra cash available. It's early days yet for the company's US operations, with the recent half yearly showing income of just $66,000 from the US and US exposure of just under $7.4 million. Due to the lengthy process of litigation and negotiation, it will take quite some time before we know if the company is as successful in the USA as it has proven to be in Australia.
Foolish takeaway
Bentham IMF may not be about to shoot the lights out, but I bought shares at around current prices because I believe corporate skullduggery will continue to create opportunities for Bentham IMF to profit over the long term. As long as lawyers and citizens in Australia and the USA continue to demand a properly function justice system, I believe that the business model will continue to work well. Shareholders must also keep in mind that much rests on the current management, who are intelligent and trustworthy, according to those who deal with them.
Although Bentham IMF shares have not dropped to "no-brainer" levels, I find them one of the most attractive options on the ASX at current prices. Indeed, the future seems bright for the company as the current Australian government is in the process of unwinding the Future of Financial Advice reforms. The new rules, will likely allow advisers to proffer advice that is not in the best interests of clients and may lead to further business for the company. After all, Bentham IMF profits when others fall.
