Why the IMF Bentham Ltd share price fell 9% on today’s results

Credit: Pixabay

The IMF Bentham Ltd (ASX: IMF) share price fell 9% to $2.90 after the company released its half year results this morning. Revenue fell 65% to $12.8 million and profit fell 131% to a loss of $4.4 million after tax. IMF maintained its interim dividend at 3 cents per share.

Revenues and profits fell due to a smaller case load and less income from litigation contracts, which fell 27% compared to the previous comparable period. As a litigation funder (IMF funds class actions against companies), IMF often has limited visibility on its revenue and cases that are launched can take several years to come to fruition.

As a result, earnings and profits can be lumpy. According to today’s presentation, the average length of cases is 2.6 years and the average return on invested capital is 1.5x, including lost cases.

As at December 30, IMF had $132 million in cash and $120 million in debt, resulting in a net cash position of $12 million. This will fall by $30 million following IMF’s investment in its two new funds (details below). However, it will also be buoyed by at least US$48 million following IMF’s recently announced sale of its US portfolio.

During the half, IMF funded 16 new cases (by comparison it funded 10 last year), including 8 in the USA and 8 outside the USA. IMF’s current investment portfolio includes 77 cases, 33 in the USA and 44 outside it. IMF also announced during the year that it was launching two new funds (largely funded by external investors) for future investments.

IMF is an interesting business, and the class action industry has only been growing in recent years. IMF doesn’t provide guidance due to the uncertain nature of its business, but management’s decision to launch several new funds could be a sign that IMF foresees significant future demand for litigation funding. Even if that is the case, the uncertainty of the business model makes IMF Bentham a higher risk investment in my opinion, and it is not suitable for all investors.

Don't Buy A SINGLE Stock Until You Read This

While conflict overseas is all media talking-heads seem to mention these days, the billionaire founder of Tesla is losing sleep over what he sees as a far bigger threat.

Elon Musk Warns: This has "vastly more risk than North Korea"

If you missed your opportunity to get in on Google, Microsoft, or Amazon in their early days, don't let it happen again. This emerging technology trend could offer a second chance for anyone who wishes they took part in these millionaire-maker stocks.

Click here to discover more!

Motley Fool contributor Sean O'Neill has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Bentham IMF Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss a very important event! Chief Investment Advisor Scott Phillips and his team at Motley Fool Share Advisor are about to reveal their latest official stock recommendation. The premium “buy alert” will be unveiled to members and you can be among the first to act on the tip.

Don’t let this opportunity pass you by – this is your chance to get in early!

Simply enter your email now to find out how you can get instant access.

By clicking this button, you agree to our Terms of Service and Privacy Policy. We will use your email address only to keep you informed about updates to our website and about other products and services we think might interest you. You can unsubscribe from Take Stock at anytime. Please refer to our Financial Services Guide (FSG) for more information.