@Portfolio Thanks, LCA is on my watchlist and i saw their $20m...

@Portfolio

Thanks, LCA is on my watchlist and i saw their $20m settlements - really good result, they did well to squeak through without having to dilute via equity raise and/or selling cases.

So they're now pro forma 31 Dec net cash about $16m (given $4m net debt at 31 Dec pre $20m settlements), less $39m market cap throws off $23m EV, versus ~$11m balance sheet value of litigation projects ($19m at 31 Dec less $8m for cost base of recently settled projects), so yeah, i can follow the logic that you can buy LCA today for grossed up book value of their litigation assets. For reference, using the same methodology i was buying IMF early last year even cheaper - they had a $162m litigation investment balance (i.e. ~$320m at 2.0x mark-up) vs. market cap at the time of ~$340m (around $2 per share) meaning that, with a net cash balance of $80m, the investment portfolio at the time was being valued around $260m, i.e. i was buying the litigation book at a ~20% discount to fair value.

That said, there's an important quirk which i just noticed in how IMF and LCA respectively account for their litigation assets - LCA capitalises external costs only, whereas IMF does that plus adds in borrowing costs and some overheads. So, to do a like-for-like, IMF's $161m capitalised balance at 31 Dec 16 should really only be $135m ($26m of the $161m was non-direct expenses), hence 2x of $135m is $270m....which was almost exactly the market-imputed value of the litigation portfolio. So, LCA today is basically trading on a like-for-like basis almost exactly where IMF was early last year when it was around the $2 per share mark.

LCA's value proposition vis-a-vis IMF, to my mind, is its low overhead and concentrated strategy (focused on sourcing a small number of large claim value cases in Aus only, mainly class actions - 2/3rds of their total portfolio claim value is concentrated in 3 class actions). In many ways, LCA is now where IMF was a decade or so ago.

I'm inclined to leave LCA on my watchlist for the time being - despite me agreeing with you that it now looks enticing in terms of value - pending a bit more information on two items:

1) How their substantial pipeline ($2.6bn claim value across 29 projects, with a $109m budget) is converted to hard commitments over the next 6-12 months; and
2) How they're going to fund themselves - clearly they can't fund a $109m pipeline at the moment from internal reserves, and management are still making noises about either debt and/or capital partnering, so i'm content to sit around for a bit and see how that evolves.

Normally my approach of waiting for additional (positive) affirmation of an investment case leads to the stock re-rating and getting away from me, but sometimes the stock goes nowhere and gives me a chance to get in. Hopefully, for my selfish purposes, LCA goes nowhere for the next 6-12 months while the business locks down its pipeline and funding arrangements...!