What: Shares of Bentham IMF Ltd (ASX: IMF) were sharply lower in morning trade after releasing its FY2014 profit results. Initially the shares were down 17 cents or nearly 8%, while the S&P/ASX 200 Index (Index: ^AXJO) (ASX: XJO) was up 0.5%.
Why the negative share price reaction?
Some of the negativity may not relate to the profit release at all, but nervousness preceding a case before the Federal Court today. This will determine whether litigation funders can take a slice of the winnings from all class action members, even if they have not signed up to a funding agreement.
The outlook statement also revealed some cautionary comments as follows:
1. There is more competition in Australia and internationally, reflecting a maturing industry.
2. There may be more regulation in Australia as the Productivity Commission's report is due in September 2014.
Potential positive future catalysts are:
Open class actions against the major banks. While IMF is presently unable to reliably measure the impact on revenue or profit, this is a potential case for completion in FY2015. As I wrote in "Can Bentham IMF Ltd win big from beating the banks?", this class action is unique and may significantly raise the size of the damages. Additionally, Bentham IMF will take 22.5% of any winnings, subject to approval by the court.
A surprise upside from a number of U.S. funded cases. The company has taken a policy position to not disclose specific details about the U.S. investments. So the market is unaware of the potential size of the cases and potential returns.
Some other highlights from the report
1. The estimated claim value of Bentham IMF's cases increased 26% in the year to 30 June 2014.
2. A final fully franked dividend of 5.0 cents was declared.
3. The announcement of a dividend reinvestment plan (DRP), whereby shareholders may receive a cash dividend, or receive shares in Bentham IMF at a 3.5% discount. This is subject to certain parameters after the record date for the dividend on 19 September 2014.
