recent comments by Michael Goldberg fund manager

A small company that our fund likes is Litigation Capital Management Limited (ASX:LCA). LCA is a funder of litigation cases. The business finds its niche in being able to recognise funding opportunities in a space not serviced by the larger litigation funder IMF Bentham. The business passes each of the tests we’ve mentioned above.

1. LCA has a proven business. Having run privately for 19 years the company recently listed with no debt and a robust flow of new business.

2. Management of LCA each have a substantial interest in LCA shares. The management stand to profit considerably more from performing well and creating shareholder value than they do from directors’ fees.

3. Having recently floated, LCA is one of the few IPO’s in recent times that listed at below market multiples. On re-confirmed prospectus guidelines, the company is currently on a PE of just 6.3 times, with a ROE of 22%. When a growth company with a return on equity over 20% is trading on below market multiples, we think it’s worth consideration.

4. LCA’s business model ensures that they seek many smaller cases rather than taking on the risk of large cases. While diversification of business ensures that they are not heavily reliant on a single case, it also ensures that their cash flows are consistent and easier to anticipate. We much prefer this business model to that of the bigger funders who generate lumpy earnings.

Given Litigation Capital’s strong balance sheet, competent and committed management, attractive valuation, and relatively low-risk business model, we at the Collins St Value Fund is happy to be invested in what we think is a deeply undervalued, well run, high-quality business.