News

  • WH Ireland Chairman and a non-exec retiring
  • Nicola Horlick is to stand as an MP for The Liberal democrats for Chelsea and Fulham
  • Calastone tell us that withdrawals from active equity funds are accelerating, with UK and property featuring as firmly out of favour. IA stats are only up to August but confirm the picture

Unicorns

  • The failure of WeCompany IPO looks like a sign of a wider malaise. The Unicorns are looking quite sick and the vet may soon be called out. Dynatrace (on the right hand side) only came to market on Wednesday this week.
  • It may be different this time but when the tech bubble burst the NASDAQ fell 50% between March 2000 and October 2002. The FTSE then also fell 48% from its peak in January 2000 to the trough in March 2003. But then the FTSE index was full of tech names.  Today the FTSE is 3% above the 2000 peak.
  • Back then the good call was to switch into mining stocks.

RBG Holdings – Meeting

Share Price 98p

Mkt Cap £84m

Conflict Disclosure: No Holding

  • Meeting Helpful meeting with RBG management yesterday. The two concerns that I had were confirmed. Firstly they £2m sale of the participation in a case was for the purpose of smoothing numbers which management were open about. They would have preferred not to sell the case but as they had a weak half year it seemed sensible. Secondly that the Convex acquisition may well be lumpy.  Management focus on the higher operating margin and the higher revenue per head than their peers.
  • Valuation  PER 12.7, yield 4.8%
  • Conclusion This reminded me very much of the quoted brokers such as Collins Stewart and Evolution back in the day.  They were high margin, cash generative, ex growth and lumpy.  You could buy them for yield, but with a 60% payout ratio the yield can’t be guaranteed at RBG.  The ability to write up litigation cases to order reminds me of the hamster wheel these litigation funders can find themselves on.  Which is why we should never own a highly valued litigation funder.  I would only want to own this business on a single figure PER, which is 30% lower than here. There is a reason they can acquire Convey at 3.7X EBITDA. This could be a good trading stock to buy on the warning and sell when it is viewed as a growth stock.

jeremy@charltonillingworth.co.uk