The IMF Bentham Ltd (ASX: IMF) share price is on watch this morning after the Aussie litigation funder’s full-year net loss ballooned 1311% higher for the year.
What did IMF Bentham announce yesterday?
For the year ended 30 June 2019 (FY19), IMF reported a 51% drop in contract income from the prior corresponding period (pcp) to $35.0 million.
While income was low, the company’s net loss before tax climbed from $8.4 million to $47.7 million, while IMF’s consolidated loss after tax and non-controlling interests rocketed 1311% to $25.4 million.
Investors might be concerned by the soft earnings result, but percentages don’t necessarily tell the full story when talking about low base numbers.
On the balance sheet side, IMF increased its cash holdings by 41% on pcp to $226.5 million while its estimated portfolio value also surged 42% higher to $8.0 billion for the year.
The company’s cash from litigation funding more than halved during the year, which saw IMF’s cash operating profit plummet ~80% lower to just $6,383,000 for FY19.
It’s hard to see investors being bullish on a stock that has seen earnings plummet, particularly given the high hopes that many had for litigation funding on the back of the 2018 Financial Services Royal Commission.
In its Australia and the Rest of the World (RoW) segment, IMF Bentham had 65 investments as at year-end with a return on invested capital (ROIC) of 1.33x and a 78% success rate.
IMF’s United States segment is smaller, with 32 investments in total; however, the company’s success rate is just 72% with an ROIC of 0.47x.
Positively for shareholders, IMF’s funding applications continue to trend upwards alongside its investment numbers, while management noted two “material idiosyncratic risks” on the company’s balance sheet.
IMF sees its Wivenhoe and Westgem investments as being of higher risk, with a “material adverse impact” on IMF’s profit and cash position if one or both of these are lost.
Balance sheet strength aside, it’s hard to see a lot of positives from this latest result.
IMF did report a higher number of investments and has maintained its strong track record, but the significant drop in earnings and profitability are areas of concerns for investors.
I personally wouldn’t view IMF Bentham as a long-term buy-and-hold stock on the basis of these results, but they could be bought on the cheap if the market reacts strongly during today’s trade, although the share price has remained flat in morning trade so far.
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