Short Term wise you are going to see more downside volatility and likely next support is going to be at the $3.40 to $3.50 area if price action drops below the last low of $3.55 formed on 10 March 2020.
I like the long term fundamentals of IMF but in the short term I am going to be bearish due to a few reasons:
1. Covid-19: At this point of time, nobody really knows the real impact and economic damage to the world's economy and its this fear and uncertainty that is going to be driving people to sell. And honestly, whether its smart money (fund manager etc) or retail investors, we are all humans at the end of the day so when you see the Dow Jones selling down 3-6% everyday, even the perma-bulls will start liquidating their positions to lock in their gains. So unlikely IMF will remain unscathed. You will see dead cat bounces along the way but until we get good news regards to Vaccines being developed to deal with Covid-19, more downside will come.
Alot of people dont understand the true impact of the Covid-19 Virus but take a look at China, they basically had to quarantine and ground entire cities and halt movement of people to basically get the virus in check and to stop spreading. China has burned through trillions of dollars trying to rescue itself from this Covid-19 virus mess and not to mention, you have all the opportunity costs of lost revenues in terms of businesses and factories not going back into full operation and people cutting back on consumption and lost tourism revenues.
So think about that for a moment happening to economies in Europe, USA and Latin America, Middle East and Africa. They will similarly have to ground entire cities because the only way to keep the virus in check is to halt movement of people.
The biggest issue I see is that unlike China, there were many economies in Europe that were tinkering on the edge of recession such as Germany and Itay and the biggest question is how much pain government leaders are willing take to in the short term to stop the spread of the disease and long term wise, how much will they have to spend and invest to get their economies back on track given that the short term damage that has been done.
2. Non Clarity in terms of Waterfall Structure for Each IMF Fund
Most of the IMF Cases are funded by their Investment Funds which means that on paper you will see millions of revenues recognized but each of them subjected to the waterfall structure of each fund. Hence, the problem is that unless you are willing to analyze the waterfall structure of each fund, you will not be able to know truly how much net revenue gain for the Parent company will be. Most of the revenue generated will go towards repaying the investors in the fund and its the reason why despite a $122M revenue recognition, the parent company still announced a loss of $19.2M because firstly IMF's parent company bears all operational expenses whereas all revenues go towards repaying the investors of each fund. So likely, there is going to be more losses for IMF's parent company until all these investors are being repaid for each fund. The upside is only that IMF gets probably 70-80% of the upside for investing only 20% of the capital for each fund but the issue is still whether the revenue gain to the parent company can cover the operational expenses
3. Non Clarity in terms of Timeline for Wivenhoe Dam and Westgem Case
The next issue is how long will it take for IMF to wrap up the cases for Wivenhoe Dam and Westgem that are funded using their balance sheets. If you look at https://www.theaustralian.com.au/nation/seqwater-to-appeal-wivenhoe-floods-class-action-victory/news-story/824ae9c82641721981cd24dd80a2123c , you will see that it will take at least 1-2 years for IMF to settle the appeals for Wivenhoe Dam and this is after getting a favorable outcome.
This will mean at the quickest, IMF will take at least 1-2 years to start recognizing the revenue from the Wivenhoe Dam case which means in the short term, there will be more expenses that will be incurred to resolve through the appeals. So short term wise, more expenses and more uncertainty but long term if the outcome of the appeal is successful, then its a big "payday" for IMF Bentham investors
If it was just so simply as opening an Investor Presentation pdf and reading off the figures, then we would not have gotten that massive selldown on 21st Feb because based on those figures in that pdf, you would have seen a $4.9m profit
I think us Retail investors have to be very careful about IMF Bentham in the short run and there is a need for us to understand the way IMF Bentham generates its revenue and profit. The key question you will need to find out yourself is how long it will take to extinguish the NCIs.
So, my take on IMF Bentham:
- Short Term: Bearish
- Medium Term: Bearish
- Long Term: Bullish (Given the recession proof nature of IMF's business model and regardless of booms and gloom, there will always be litigation cases to fund)
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