Hits: 23

9 July 2020

RBG Holdings – Pre Close Update

Share Price 71p

Mkt Cap £60m

Conflict Disclosure: No Holding

  • Update Revenue expected to be 38% ahead in H1 to £11.4m, despite no revenues from Litigation Finance (a£2m headwind). Convex Capital has seen a deferral of nearly all transactions anticipated in H1 2020. Due to uncertainty no guidance is provided.
  • Estimates Last year £19.9m revenue was reported for the full year. With £11.4m in H1 this looks easily achievable but the lumpy nature of Convex and litigation funding means it remains a lottery.
  • Valuation PE 9.5X last year’s EPS. 
  • Conclusion The lumpy nature of the business suggests this is a play on earnings rather than valuation. One to buy in bad times and sell when it has a good run. The shares are 30% down from pre COVID levels and are starting to look interesting.

21 April 2020

RBG Holdings – FY Results

Share Price 64p

Mkt Cap £55m

Conflict Disclosure: No Holding

 

  • Results Revenue and realised gains up 26% to £23.7m. EBITDA up 46% to £9.4m. PBT up 27% to £7.6m. Net assets £42.4m and cash £1.9m. Dividend delayed. EPS 7.6p (2018 3.8p). Rosenblatt increased revenue 16% to £21.8m. Litigation finance generated £3.8m gains so if we strip this out it looks like underlying legal services revenue was modestly down. Convex generated £1.85m revenue in the short period it was owned.

 

  • Valuation PE 8X, Yield 7.8%. ROE is 14% and Price/book 1.3X

 

  • Conclusion This is an increasingly lumpy business so is one to buy when it takes an earnings hit. It is cheap but lumpy businesses tend to be.

16 April 2020

RBG Holdings – Litigation Update

Share Price 62p

Mkt Cap £53m

Conflict Disclosure: No Holding

 

  • Update The company has invested £3.1m in 3 cases. The first one has a potential £4.2m fee which crystalises if a recent judgement is upheld. The second one is a claim for £1bn. No update on the third one.

 

  • Estimates. Results to be announced 21 April. £8.1m PBT expected

 

  • Valuation Net assets are £35m and the shares trade at 1.5X NAV delivering a 18% ROE. PE 7.7X Yield 8%

 

  • Conclusion The law firm should do well with access to high end litigation cases. But Convex is likely to suffer during lock down. The company has £0.7m cash and a £10m facility.  Funding the litigation cases may need some debt which makes this one for the brave.

24 January 2020

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RBG Holdings – Pre Close Update 

Share Price 98p

Mkt Cap £85m

Conflict Disclosure: No Holding

  • Update Results expected to be in line with expectations. Rosenblatt has built £2m of contingent revenue while the corporate division saw reduced billings though this is increasing post the election. Convex Capital, acquired in September, has contributed to revenues and has a significant pipeline of transactions. £2,2m is invested in 11 cases. An interim dividend for the 6 months to December of 3p is expected. Keith Hamill is new Chairman.
  • Estimates PBT of £7.8m to Dec 2019 is expected, growing to £9m in Dec 2020. EPS 8.7p and a 5.2p dividend. The total dividend for 2019 is expected to be 5p, ahead of the 4.8p forecast.
  • Valuation PER 11.3X Yield 5%. IG trades on 17.4X.
  • Conclusion This is now a transactional business. Numis trades on 13.7X PE and yields 4.2% and RBg deservedly trades at a discount.  While the valuation looks about right this could be a good year for these transactional businesses so there could be a trade here.

4 October 2019

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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.

16 September 2019

Rosenblatt Group Plc – Acquisition 

Share Price 88p

Mkt Cap £71m

Conflict Disclosure: No Holding

  • Acquisition – Rosenblatt is buying a Manchester based corporate finance boutique, Convex Capital Limited for up to £22m, 40% in cash, 60% shares with initial consideration of £13.6m. The company is changing its name to RBG Holdings Plc, as it evolves to become a broad based supplier of professional services.  The acquisition is immediately and materially earnings enhancing. Last year Convex delivered £8.7m revenue and £4.3m PBT, which would make the maximum acquisition cost 5.1X PBT and 2.5X last years revenue. Trading is confirmed to be in line with 1 August update. That update confirmed the corporate division was experiencing delays while overall trading was in line.
  • Estimates The acquisition involves potentially the issue of £13.2m shares, which is 18.6% of the market cap, while adding last year’s Convex PBT increases PBT by almost 60%. That maths suggests 50% plus earnings enhancement
  • Valuation PER 11.9X, Yield 5.1%.
  • Conclusion Rosenblatt has the lumpiest of the lawyer revenues. Adding another unpredictable corporate transaction based business to create earnings enhancement doesn’t necessarily make a good investment. Finncap have done the same with Cavendish. I can’t help but feel there is a reason these corporate finance boutiques don’t float on their own. And to do this at a time when corporate transaction are being delayed according to Rosenblatt’s 1 August statement has a defensive feel. The maths of earnings enhancement is very different to efficient capital allocation.  We can expect a de rating.