IMF is a global leader in litigation funding, with a $1.5 billion litigation portfolio and a track record of winning 78% of cases. Litigation funding provides portfolio diversification and is not correlated with economic cycles. IMF trades at a discount to its $1.96 blended valuation, offering upside potential from case wins and portfolio growth. Key value drivers are the size of the litigation portfolio, IMF's high win rate, and the duration of its cases.
This chapter provides an overview of key concepts in financial management. It discusses the primary goal of maximizing shareholder value and agency relationships between shareholders, managers, and creditors. It also covers the importance of financial management skills for managers, factors that determine the value and cost of capital for firms, and types of financial securities and their typical rates of return.
This document discusses various topics related to mergers and acquisitions including: types of mergers; reasons for mergers such as synergy creation and questionable reasons like diversification; the process of leveraged buyouts and going private; different types of divestitures; and the purpose and advantages of holding companies. Investment bankers play important roles in identifying targets, arranging deals, and providing advisory services related to mergers.
This document assesses the capital structure of Hutchison Whampoa based on its future financing needs. It analyzes Hutchison Whampoa's current capital structure ratios and compares them to industry averages. It also models how different ratios would be impacted by raising $500 million through various combinations of debt and equity. Overall, the analysis finds that Hutchison Whampoa's current capital structure ratios are healthy but could be optimized further to improve profitability and cash flow while maintaining financial stability.
Fm11 ch 16 capital structure decisions the basicsNhu Tuyet Tran
This document provides an overview of capital structure decisions and theory. It defines key terms related to capital structure and costs of capital. It discusses how debt can impact the weighted average cost of capital and free cash flows. Capital structure theories covered include Modigliani-Miller with no taxes, corporate taxes, and corporate and personal taxes. The trade-off theory and signaling theory are also introduced.
This document provides an analysis of Artisan Partners Asset Management (APAM). It discusses APAM's products, performance, ownership structure, and competitive positioning in the asset management industry. Some key points:
- APAM has approximately $97 billion in assets under management across 15 investment strategies. However, 75% of its AUM is in funds closed to new investors, limiting its growth potential.
- APAM's fund performance has been declining relative to peers, which could lead to lower inflows and pressure to reduce fees.
- The industry is seeing a shift toward lower-fee passive investments, which may compress fees for active managers like APAM.
- APAM derives most of its revenue from
The document discusses capital structure, which is the mix of debt and equity used to finance a firm. The value of a firm is equal to the value of its debt plus the value of its equity. The optimal capital structure maximizes firm value by balancing the debt-equity ratio. Factors that influence the capital structure decision include business risk, taxes, financial flexibility, growth opportunities, and market conditions. Leverage increases risk for shareholders but also increases potential returns, as interest payments are tax deductible. Higher debt leads to greater financial risk.
This document summarizes steps for formulating a treasury risk management framework. It discusses understanding how treasury impacts the business, identifying treasury risks, selecting objectives and policies, defining the treasury organization structure, ensuring board review and approval of policies, and setting up regular reporting procedures. Key points covered include understanding critical success factors, risk appetite, identifying risks like interest rate, exchange rate, liquidity and economic risks, selecting treasury objectives in areas like foreign exchange and interest rate management, and setting policy parameters and responsibilities.
The document provides an analysis of Artisan Partners (APAM) recommending a SELL with a price target of $29. The analysis cites three key business drivers negatively impacting APAM: 1) Limited growth opportunities due to passive investing trends and closed funds, 2) Declining fund performance impacting flows, and 3) High fees that require consistent outperformance. A DCF valuation estimates APAM's intrinsic value at $33, while relative valuations estimate $23-23.40. Weighting the methods gives a target price of $29, implying the stock is overvalued.
This chapter provides an overview of key concepts in financial management. It discusses the primary goal of maximizing shareholder value and agency relationships between shareholders, managers, and creditors. It also covers the importance of financial management skills for managers, factors that determine the value and cost of capital for firms, and types of financial securities and their typical rates of return.
This document discusses various topics related to mergers and acquisitions including: types of mergers; reasons for mergers such as synergy creation and questionable reasons like diversification; the process of leveraged buyouts and going private; different types of divestitures; and the purpose and advantages of holding companies. Investment bankers play important roles in identifying targets, arranging deals, and providing advisory services related to mergers.
This document assesses the capital structure of Hutchison Whampoa based on its future financing needs. It analyzes Hutchison Whampoa's current capital structure ratios and compares them to industry averages. It also models how different ratios would be impacted by raising $500 million through various combinations of debt and equity. Overall, the analysis finds that Hutchison Whampoa's current capital structure ratios are healthy but could be optimized further to improve profitability and cash flow while maintaining financial stability.
Fm11 ch 16 capital structure decisions the basicsNhu Tuyet Tran
This document provides an overview of capital structure decisions and theory. It defines key terms related to capital structure and costs of capital. It discusses how debt can impact the weighted average cost of capital and free cash flows. Capital structure theories covered include Modigliani-Miller with no taxes, corporate taxes, and corporate and personal taxes. The trade-off theory and signaling theory are also introduced.
This document provides an analysis of Artisan Partners Asset Management (APAM). It discusses APAM's products, performance, ownership structure, and competitive positioning in the asset management industry. Some key points:
- APAM has approximately $97 billion in assets under management across 15 investment strategies. However, 75% of its AUM is in funds closed to new investors, limiting its growth potential.
- APAM's fund performance has been declining relative to peers, which could lead to lower inflows and pressure to reduce fees.
- The industry is seeing a shift toward lower-fee passive investments, which may compress fees for active managers like APAM.
- APAM derives most of its revenue from
The document discusses capital structure, which is the mix of debt and equity used to finance a firm. The value of a firm is equal to the value of its debt plus the value of its equity. The optimal capital structure maximizes firm value by balancing the debt-equity ratio. Factors that influence the capital structure decision include business risk, taxes, financial flexibility, growth opportunities, and market conditions. Leverage increases risk for shareholders but also increases potential returns, as interest payments are tax deductible. Higher debt leads to greater financial risk.
This document summarizes steps for formulating a treasury risk management framework. It discusses understanding how treasury impacts the business, identifying treasury risks, selecting objectives and policies, defining the treasury organization structure, ensuring board review and approval of policies, and setting up regular reporting procedures. Key points covered include understanding critical success factors, risk appetite, identifying risks like interest rate, exchange rate, liquidity and economic risks, selecting treasury objectives in areas like foreign exchange and interest rate management, and setting policy parameters and responsibilities.
The document provides an analysis of Artisan Partners (APAM) recommending a SELL with a price target of $29. The analysis cites three key business drivers negatively impacting APAM: 1) Limited growth opportunities due to passive investing trends and closed funds, 2) Declining fund performance impacting flows, and 3) High fees that require consistent outperformance. A DCF valuation estimates APAM's intrinsic value at $33, while relative valuations estimate $23-23.40. Weighting the methods gives a target price of $29, implying the stock is overvalued.
Signaling theory and window of opportunity theory are two theories of capital structure. Signaling theory suggests that managers have better information about a company's prospects than outside investors. Companies with positive prospects will avoid stock offerings, while those with negative prospects will want to issue stock to share losses. The window of opportunity theory proposes that managers time the market when issuing securities, such as issuing equity when stock prices are high and debt when interest rates are low. Capital structure choices also impact lenders and rating agencies.
Chapter 14 Capital Structure and Leverage version1Mikee Bylss
This document covers capital structure and leverage. It discusses the differences between book value, market value, and target capital structures. It also explains business risk versus financial risk and how debt financing can affect both. The optimal capital structure balances the positive effects of increased earnings per share from using debt against the negative effects of increased risk for stockholders. Finally, the document discusses different theories about capital structure, including the trade-off theory and signaling theory.
The document discusses financial management and capital structure. It defines financial management as planning, directing, monitoring, and controlling a company's monetary resources. It also discusses the key objectives of financial management which include creating wealth, generating cash flow, and providing sufficient returns. The document then covers various aspects of financial management including financial planning, organizing, controlling, and reporting. It also discusses the importance of financial management and fundamental financial management decisions related to investments, financing, and dividends. Finally, the document defines capital structure and discusses different types of capital including equity and debt capital. It also covers various approaches to analyzing capital structure.
Capital Structure, Business Risk & financial riskRamesh Pant
This document discusses capital structure, business risk, and financial risk. It defines capital structure as a company's mix of debt and equity used to finance its activities. A higher proportion of debt increases risk exposure. Business risk refers to uncertainty about future operating income and is independent of debt levels. It depends on demand, prices, costs, competition, and other operating factors. Financial risk is the additional risk to shareholders from using debt financing, as debt holders are paid before shareholders if the company fails. Higher debt increases financial risk by concentrating business risk on shareholders.
This document summarizes a study on the determinants of capital structure in Thailand. The study analyzed data on 144 Thai listed companies from 2000 to 2011 to examine how firm-specific factors like size, profitability, asset tangibility, growth opportunities, and volatility influence a company's leverage ratios. The results showed that leverage ratios increased significantly with firm size but decreased significantly with profitability, in line with trade-off and pecking order theories. However, tangibility, growth, and volatility did not have significant relationships with leverage ratios. Therefore, the study concluded that firm size and profitability are the main determinants of capital structure for companies in Thailand.
Hutchinson Whampoa's Harvard Case StudyLaini Tsang
Hutchinson Whampoa needed to raise $5 billion in capital over the next 5 years to fund growth projects. They were considering different financing options like debt and equity. Debt financing was preferable due to tax benefits, but high debt could hurt Hutchinson's credit rating. Equity financing risked diluting ownership. Issuing eurobonds in Japan offered lower interest rates than Hong Kong due to Japan's economic conditions. The summary recommends starting with smaller Yankee bond issues in the US to pave the way for future access to US capital markets.
1) The document summarizes a research paper that examines the determinants of capital structure for Chinese listed companies using market and accounting data up to 2000.
2) The findings show that leverage is negatively correlated with profitability but positively correlated with firm size, volatility, tangibility, growth, and dividends. Leverage is also negatively correlated with non-debt tax shields and intangibility.
3) These results are consistent with predictions from both the tradeoff theory and pecking order theory of capital structure. Larger, more tangible firms with growth opportunities tend to have higher leverage, while more profitable firms with non-debt tax shields tend to have lower leverage.
This document discusses capital structure and leverage. It defines capital structure as the composition of a company's long-term capital sources including loans, reserves, shares and bonds. The optimal capital structure maximizes firm value by balancing the use of debt and equity. Leverage refers to a company's use of fixed-cost funds, like debt, to increase returns to shareholders. Both financial leverage and operating leverage can magnify the impact of changes in revenues and earnings but also increase business risk.
Ch 5 international capital structure and cost of capital latestShadina Shah
This document discusses international capital structures and costs of capital. It covers several topics: (1) how the cost of capital is estimated using weighted average cost of capital and CAPM models; (2) how segmented vs integrated capital markets impact cost of capital calculations; (3) evidence that costs of capital differ among countries; (4) benefits and costs of cross-border stock listings for reducing costs; and (5) how foreign ownership restrictions can increase costs through pricing-to-market effects. The chapter aims to explain how multinational firms can reduce their costs of capital through international diversification and accessing different capital markets.
Fm11 ch 19 initial public offerings, investment banking, and financial restru...Nhu Tuyet Tran
The document discusses various topics related to initial public offerings (IPOs), investment banking, and financial restructuring. It describes the IPO process, including selecting an investment banker, filing with the SEC, determining the offering price through book building and roadshows, and the costs and returns for companies and investors. Common post-IPO strategies like rights offerings, equity carve-outs, and going private/leveraged buyouts are also summarized.
The document discusses the performance of various model investment portfolios from 1973-2010. It provides the annualized compound returns and annualized standard deviations for 5 model portfolios over this period. The model portfolios had varying allocations to US and international stocks, bonds, and emerging markets. Model portfolio 5, which had the most diversified allocation, achieved the highest annualized return of 11.65% and relatively low standard deviation of 11.26% compared to the other portfolios.
Fm11 ch 18 distributions to shareholders dividends and repurchasesNhu Tuyet Tran
This document discusses distributions to shareholders, including dividends and stock repurchases. It covers theories of investor preferences for dividends, the residual model for setting dividend policy, and factors managers consider like signaling effects and maintaining a target capital structure. Stock repurchases, dividends, splits and dividend reinvestment plans are also summarized. The optimal use of these strategies depends on forecasted capital needs, target payout and maintaining stable growth rates over time.
The capital structure of a company refers to the composition of its long-term financing, including loans, reserves, shares, and bonds. A company's capital structure is influenced by both internal factors like financial leverage, risk tolerance, and growth plans as well as external factors like industry norms, availability of funds, and tax policies. An optimal capital structure maximizes the value of the company by balancing the use of debt financing which increases earnings per share but also increases financial risk. The point of indifference is the earnings level at which earnings per share remains the same regardless of the debt-to-equity mix. Leverage refers to using fixed-cost funds to increase returns to owners, either through financial leverage of long-term debt or operating
1) The capital structure of a firm refers to how it finances its operations and growth through different sources of funds, including debt, equity, and retained earnings.
2) Several factors influence a firm's capital structure decisions, including business risk, tax exposure, financial flexibility, management style, growth rate, and market conditions.
3) Business risk, tax rates, financial flexibility, management aggressiveness, growth needs, and market access all impact the optimal mix of debt and equity financing for firms.
This document provides an overview of capital structure decisions and theory. It defines key terms related to capital structure and costs of capital. It discusses how debt can impact the weighted average cost of capital and free cash flows. Capital structure theories covered include Modigliani-Miller with no taxes, corporate taxes, and corporate and personal taxes. The trade-off theory and signaling theory are also introduced.
This document discusses various theories of capital structure and their impact on firm value. It begins by explaining the net operating income, traditional, and net income approaches. It then summarizes the Modigliani-Miller hypothesis without and with taxes. It discusses how taxes make debt financing advantageous via interest tax shields. However, costs of financial distress and agency costs limit this advantage. The trade-off theory and pecking order theory are also covered. Finally, it discusses approaches to establishing an optimal capital structure.
Аты-жөні:Тұрысбекова Арайлым Тұрарбекқызы
Қызметі:Физика пәнінің оқытушысы
Жұмыс орны:Алматы сервистік қызмет көрсету колледжі
Бағыты:Физика-математикалық
MMS - initiation of equity research reportGeorge Gabriel
This document summarizes a stock analysis report on McMillan Shakespeare (MMS) from Evans & Partners. The report maintains a positive recommendation on MMS. In the first half of 2012, MMS's Remuneration Services segment saw strong earnings growth while its Asset Management segment remained flat. The report upgrades its valuation of MMS from $10.40 to $11.27 per share based on modest earnings forecast revisions for fiscal years 2012-2014. Key growth opportunities for MMS include cross-selling products, new financing programs, and potential outsourcing contracts.
Japara (JHC) equity research initiation report - riding the silver tsunami -...George Gabriel
The report initiates coverage on Japara Healthcare with a BUY recommendation and $2.77 price target. It estimates Japara has 30-60% EPS upside over three years from deploying $142 million in increased accommodation bonds into acquisitions and from extra services revenue allowed under new regulations. The aged care sector benefits from demographic trends and limited supply, while Japara is well positioned to achieve its goal of 5000 beds through a fragmented market providing consolidation opportunities.
Signaling theory and window of opportunity theory are two theories of capital structure. Signaling theory suggests that managers have better information about a company's prospects than outside investors. Companies with positive prospects will avoid stock offerings, while those with negative prospects will want to issue stock to share losses. The window of opportunity theory proposes that managers time the market when issuing securities, such as issuing equity when stock prices are high and debt when interest rates are low. Capital structure choices also impact lenders and rating agencies.
Chapter 14 Capital Structure and Leverage version1Mikee Bylss
This document covers capital structure and leverage. It discusses the differences between book value, market value, and target capital structures. It also explains business risk versus financial risk and how debt financing can affect both. The optimal capital structure balances the positive effects of increased earnings per share from using debt against the negative effects of increased risk for stockholders. Finally, the document discusses different theories about capital structure, including the trade-off theory and signaling theory.
The document discusses financial management and capital structure. It defines financial management as planning, directing, monitoring, and controlling a company's monetary resources. It also discusses the key objectives of financial management which include creating wealth, generating cash flow, and providing sufficient returns. The document then covers various aspects of financial management including financial planning, organizing, controlling, and reporting. It also discusses the importance of financial management and fundamental financial management decisions related to investments, financing, and dividends. Finally, the document defines capital structure and discusses different types of capital including equity and debt capital. It also covers various approaches to analyzing capital structure.
Capital Structure, Business Risk & financial riskRamesh Pant
This document discusses capital structure, business risk, and financial risk. It defines capital structure as a company's mix of debt and equity used to finance its activities. A higher proportion of debt increases risk exposure. Business risk refers to uncertainty about future operating income and is independent of debt levels. It depends on demand, prices, costs, competition, and other operating factors. Financial risk is the additional risk to shareholders from using debt financing, as debt holders are paid before shareholders if the company fails. Higher debt increases financial risk by concentrating business risk on shareholders.
This document summarizes a study on the determinants of capital structure in Thailand. The study analyzed data on 144 Thai listed companies from 2000 to 2011 to examine how firm-specific factors like size, profitability, asset tangibility, growth opportunities, and volatility influence a company's leverage ratios. The results showed that leverage ratios increased significantly with firm size but decreased significantly with profitability, in line with trade-off and pecking order theories. However, tangibility, growth, and volatility did not have significant relationships with leverage ratios. Therefore, the study concluded that firm size and profitability are the main determinants of capital structure for companies in Thailand.
Hutchinson Whampoa's Harvard Case StudyLaini Tsang
Hutchinson Whampoa needed to raise $5 billion in capital over the next 5 years to fund growth projects. They were considering different financing options like debt and equity. Debt financing was preferable due to tax benefits, but high debt could hurt Hutchinson's credit rating. Equity financing risked diluting ownership. Issuing eurobonds in Japan offered lower interest rates than Hong Kong due to Japan's economic conditions. The summary recommends starting with smaller Yankee bond issues in the US to pave the way for future access to US capital markets.
1) The document summarizes a research paper that examines the determinants of capital structure for Chinese listed companies using market and accounting data up to 2000.
2) The findings show that leverage is negatively correlated with profitability but positively correlated with firm size, volatility, tangibility, growth, and dividends. Leverage is also negatively correlated with non-debt tax shields and intangibility.
3) These results are consistent with predictions from both the tradeoff theory and pecking order theory of capital structure. Larger, more tangible firms with growth opportunities tend to have higher leverage, while more profitable firms with non-debt tax shields tend to have lower leverage.
This document discusses capital structure and leverage. It defines capital structure as the composition of a company's long-term capital sources including loans, reserves, shares and bonds. The optimal capital structure maximizes firm value by balancing the use of debt and equity. Leverage refers to a company's use of fixed-cost funds, like debt, to increase returns to shareholders. Both financial leverage and operating leverage can magnify the impact of changes in revenues and earnings but also increase business risk.
Ch 5 international capital structure and cost of capital latestShadina Shah
This document discusses international capital structures and costs of capital. It covers several topics: (1) how the cost of capital is estimated using weighted average cost of capital and CAPM models; (2) how segmented vs integrated capital markets impact cost of capital calculations; (3) evidence that costs of capital differ among countries; (4) benefits and costs of cross-border stock listings for reducing costs; and (5) how foreign ownership restrictions can increase costs through pricing-to-market effects. The chapter aims to explain how multinational firms can reduce their costs of capital through international diversification and accessing different capital markets.
Fm11 ch 19 initial public offerings, investment banking, and financial restru...Nhu Tuyet Tran
The document discusses various topics related to initial public offerings (IPOs), investment banking, and financial restructuring. It describes the IPO process, including selecting an investment banker, filing with the SEC, determining the offering price through book building and roadshows, and the costs and returns for companies and investors. Common post-IPO strategies like rights offerings, equity carve-outs, and going private/leveraged buyouts are also summarized.
The document discusses the performance of various model investment portfolios from 1973-2010. It provides the annualized compound returns and annualized standard deviations for 5 model portfolios over this period. The model portfolios had varying allocations to US and international stocks, bonds, and emerging markets. Model portfolio 5, which had the most diversified allocation, achieved the highest annualized return of 11.65% and relatively low standard deviation of 11.26% compared to the other portfolios.
Fm11 ch 18 distributions to shareholders dividends and repurchasesNhu Tuyet Tran
This document discusses distributions to shareholders, including dividends and stock repurchases. It covers theories of investor preferences for dividends, the residual model for setting dividend policy, and factors managers consider like signaling effects and maintaining a target capital structure. Stock repurchases, dividends, splits and dividend reinvestment plans are also summarized. The optimal use of these strategies depends on forecasted capital needs, target payout and maintaining stable growth rates over time.
The capital structure of a company refers to the composition of its long-term financing, including loans, reserves, shares, and bonds. A company's capital structure is influenced by both internal factors like financial leverage, risk tolerance, and growth plans as well as external factors like industry norms, availability of funds, and tax policies. An optimal capital structure maximizes the value of the company by balancing the use of debt financing which increases earnings per share but also increases financial risk. The point of indifference is the earnings level at which earnings per share remains the same regardless of the debt-to-equity mix. Leverage refers to using fixed-cost funds to increase returns to owners, either through financial leverage of long-term debt or operating
1) The capital structure of a firm refers to how it finances its operations and growth through different sources of funds, including debt, equity, and retained earnings.
2) Several factors influence a firm's capital structure decisions, including business risk, tax exposure, financial flexibility, management style, growth rate, and market conditions.
3) Business risk, tax rates, financial flexibility, management aggressiveness, growth needs, and market access all impact the optimal mix of debt and equity financing for firms.
This document provides an overview of capital structure decisions and theory. It defines key terms related to capital structure and costs of capital. It discusses how debt can impact the weighted average cost of capital and free cash flows. Capital structure theories covered include Modigliani-Miller with no taxes, corporate taxes, and corporate and personal taxes. The trade-off theory and signaling theory are also introduced.
This document discusses various theories of capital structure and their impact on firm value. It begins by explaining the net operating income, traditional, and net income approaches. It then summarizes the Modigliani-Miller hypothesis without and with taxes. It discusses how taxes make debt financing advantageous via interest tax shields. However, costs of financial distress and agency costs limit this advantage. The trade-off theory and pecking order theory are also covered. Finally, it discusses approaches to establishing an optimal capital structure.
Аты-жөні:Тұрысбекова Арайлым Тұрарбекқызы
Қызметі:Физика пәнінің оқытушысы
Жұмыс орны:Алматы сервистік қызмет көрсету колледжі
Бағыты:Физика-математикалық
MMS - initiation of equity research reportGeorge Gabriel
This document summarizes a stock analysis report on McMillan Shakespeare (MMS) from Evans & Partners. The report maintains a positive recommendation on MMS. In the first half of 2012, MMS's Remuneration Services segment saw strong earnings growth while its Asset Management segment remained flat. The report upgrades its valuation of MMS from $10.40 to $11.27 per share based on modest earnings forecast revisions for fiscal years 2012-2014. Key growth opportunities for MMS include cross-selling products, new financing programs, and potential outsourcing contracts.
Japara (JHC) equity research initiation report - riding the silver tsunami -...George Gabriel
The report initiates coverage on Japara Healthcare with a BUY recommendation and $2.77 price target. It estimates Japara has 30-60% EPS upside over three years from deploying $142 million in increased accommodation bonds into acquisitions and from extra services revenue allowed under new regulations. The aged care sector benefits from demographic trends and limited supply, while Japara is well positioned to achieve its goal of 5000 beds through a fragmented market providing consolidation opportunities.
The document discusses the benefits of creating a smoking area at IBA. It acknowledges that smoking is a personal choice for most considerate smokers. It then provides several arguments in favor of a smoking area, including that banning smoking could decrease productivity and provoke people to break rules. The document concludes by arguing that an absolute ban is impractical and that designating a smoking zone, as supported by a recent survey, would be a better option to respect individual needs.
El documento presenta información sobre un curso de soporte técnico a distancia impartido por el CECYTE 05 BCS. Contiene un examen diagnóstico con preguntas sobre conceptos de soporte técnico, una bitácora de soporte técnico a distancia, y detalles sobre dos estudiantes, Hilda y Itzel, inscritas en el curso de especialidad en soporte y mantenimiento de equipos de cómputo.
RESEARCH OUTLINE 1
RESEARCH OUTLINE
Name
Institution
Date
Lafarge is a construction company that provides construction solutions worldwide. It is the leading contributor in constructions of cities worldwide. Lafarge offers solutions in infrastructure, building, oil and gas, affordable housing and distribution. The company offers solutions in almost any project one hopes to start. It is the world’s leading company in building materials with cement, aggregate and concrete businesses. Lafarge has very many projects in every aspect it contributes to. It contributes largely in employment in different countries by offering variety of jobs and internships to prospective candidates.
An outline mapping the elements that will help in my research on the Lafarge Company.
Shares and Dividends.
An analysis of the share prices in a period of at least five years will be done. This will aim at showing the trend in share prices over that period. This trend will provide information necessary in financial analysis. The information will help us report on the financial position of the company. Another element would be the dividends paid out to the shareholders. Dividends are an example of cost of money therefore; the payout ratio shows how profitable the company is. An analysis of the type of shareholders the company has would also help in the analysis. Other analyses would be trends on earnings per share, dividends per share and dividend payout ratio.
Financial statements.
Financial statements like Statements of financial position, income statements, etc. are very useful in financial analysis. Lafarge publishes its statements annually. They include press release, shareholders publication, consolidated accounts, etc. An extensive research and analysis of the same will highly contribute to my research on the company. A ratio analysis will be done to give conclusions on the liquidity, profitability, shareholders’ contribution and stability of the company.
Creditinformation
This is information on the debts of the company. This information is very useful in determining the financial position of a company. Credit information will help in making the best conclusion on how well the company can meet its debts with respect to its assets. The level of credit will also help in determining the creditworthiness of the company. This is information that will help on my research of the company’s performance.
Investments
An analysis of the company’s investments will help in the research. Investments are the largest sources of revenues to a company. The cost of money brought about by these investments is a prime contributor to the company’s financial position. Therefore, analyzing the investment records will greatly help in the research. A thorough analysis of the level of finance invested and returns from each investment are to be done.
Assets and Liabil ...
Financials_FFH.TO_Hold_03_02_2015-3 (FInal Version)Alfredo Leon
The document provides an analysis of ACE Limited (TSX: FFH.TO) by the Babson College Fund Financials Sector Team. Key points include:
1) FFH.TO is rated "HOLD" with a price target of $699.97, representing potential upside of 6.7% from its current price of $656. The company has a unique investment philosophy and niche insurance products.
2) Strengths include improved underwriting results, uncorrelated market returns providing portfolio hedging, a diversified investment portfolio, and consistent book value growth. However, more analysis is needed due to current price uncertainty.
3) Risks include natural catastrophes, liquidity
This document identifies 10 trends shaping the investment management industry in a world of low interest rates, high volatility, and high correlations between asset classes. The key trends are the search for yield driving demand for credit and dividend-paying stocks; the debate around whether equities can still outperform with their high volatility; the growth of risk-minimizing multi-asset strategies; the shift to passive index funds and ETFs; and declining performance of hedge funds. Understanding how investor behavior is changing in response to these trends will be important for investment managers and can provide insights into future asset prices.
This study examines the value effects of hedging foreign currency and interest rate risk with derivatives for firms in Italy, Spain and Portugal from 2006-2008. The authors find an overall hedging premium of 13% for the full sample, but this masks country-level variation. Separate analyses find a 12% premium for Italian firms and 20% premium for Spanish firms, but no significant premium for Portuguese firms. The authors aim to determine if hedging increases firm value, which could influence regulators' proposals to require central clearing of derivatives that may deter corporate hedging activities.
The document discusses currency risk management and hedging strategies. It provides an overview of currency risk, defines different types of risk, and reviews case studies showing how hedging transactions protects a company's profits from foreign exchange volatility. The summary emphasizes that properly hedging transactions removes the impact of currency fluctuations and provides predictable income compared to being unhedged.
Global Equity Separately Managed AccountSandyWarrick
This document discusses managing a global equity portfolio in a tax-efficient manner. It argues that global, multi-cap portfolios better approximate the market and provide more diversification and opportunities for tax harvesting. The key tradeoffs are between tracking error and taxes, and tracking error and alpha. The document outlines using factor alphas and optimization to balance these goals while minimizing trading costs and short-term capital gains over time. Backtesting different settings can help determine an approach likely to add value going forward.
The document discusses the syndicated loan market and sponsored middle market deals in the second quarter of 2010. Key points include:
- Sponsored issuance increased significantly year-over-year due to more liquidity and improved projections, though growth slowed in June.
- Leverage multiples increased to 3.0-3.5x for senior debt and 4.5-5.0x for total debt. Pricing also increased from the first quarter.
- The majority of deals were sponsor-to-sponsor trades as sponsors focused on harvesting gains through dividend financings.
- Fifth Third Bank outlined its views on deal terms including leverage, pricing, fees and covenants for middle market transactions
Determinants of Cash holding in German MarketIOSR Journals
Cash is usually known as the blood of any business entity that is why it is very important policy matter in the modern corporate financial decision and policy matters. An appropriate level of cash is required within the firm for the good and smooth operations of any sort of business entity. This research report investigates the determinants of cash holding in non-financial firms of Germany across different firm sizes and industries. Furthermore the data set for the period of 2000 to 2010 for the firm size, log of total assets, EBIT, Capital expenditure percentage of sales, working capital, liquidity (current ratio), and leverage has been taken to study the impact of these on level of corporate cash holdings. It is shown that cash holdings must be analysed from a dynamic point of view: A strong empirical support was found for the hypothesis of implicit cash targets. Financial determinants influence the corporate cash holdings, but it’s not clear which model, the transaction cost model or the managerial opportunism, thesis supports best the empirical findings. The findings of this study are consistent with the predictions of the trade-off theory, pecking order theory, and agency cost theory. The result gave strong evidence that firm size, working capital, and leverage significantly affect the cash holdings decisions of non-financial firms and that are in conformity with the existing literature on the determinants of corporate cash holdings
This document is a student paper submission for an advanced accounting course. It discusses foreign currency risk for a company called XYZ Inc. that is looking to expand sales into three other countries. The paper addresses the three main types of foreign currency risk: accounting, transaction, and operating exposure. It also discusses hedging strategies like forward contracts and money market hedges that could help mitigate XYZ's currency risk. The paper concludes that XYZ should use the temporal translation method to minimize its balance sheet exposure given its operations will be in countries with high inflation.
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cial risk becomes so serious that investors and management alike pierceive a real danger of
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ing the weighted average cost of capital. The lou,point on the resulting U-shaped cost of cap-
ital curve. which is at 14"/" in Exhibit 13.2. defines the debt ratio range in which the cost of
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area and the location of a particular firm's debt ratio rvithin that range are determined by
such variables as 1) the industry in which it competes;2) volatility of its sales and operating
income; and 3) the collateral value of its assets.
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ables in order to accommodate the case of the MNE. These variables, in order of appearance,
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4) expectations of international portfoiio investors.
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an MNE to lower its cost of equity and debt compared rvith most domestic firms. It also per-
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The document discusses the investment performance of the Legg Mason Capital Management Value Trust (LMVTX) mutual fund over a period of 15 consecutive years from 1991 to 2006. It notes that LMVTX outperformed the S&P 500 benchmark during this time period. However, from 2006 to 2009 during the global economic recession, LMVTX underperformed the S&P 500. The document analyzes the performance of LMVTX using various metrics such as Sharpe ratio to determine if it provided high returns with relatively low risk compared to the S&P 500.
2.2. Balance Of Payment Capital Account To Finance Ca DeficitHai Vu
International Finance related issues.
The Capital Account of the balance of payments measures all international economic transactions of financial assets. It is divided into two components:
+ The Capital Account
+ The Financial Account.
Capital Accounts consist of:
- Direct Investment – in which the investor exerts some explicit degree of control over the assets.
- Portfolio Investment – in which the investor has no control over the assets nor any participation in the management.
- Other Investment – consists of various short-term and long-term trade credits, cross-border loans, currency deposits, bank deposits and other capital flows related to cross-border trade.
DSR - Debt Service Ratio:
The Debt Service Ratio - DSR is the percentage of a borrower's income that will be used to pay off a loan. It is one of the factors a lender will use to assess your application. Most lenders set the maximum DSR from 30% to 30%, which means that the loan repayments should not take up more than that part of your salary. This ensures that you will be able to pay off your loan comfortably, with little to no risk of defaulting or going bankrupt. The DSR may be calculated based on your monthly, weekly or fortnightly earnings.
The buying back of shares increases the company’s gearing ratio, my point of ...Francesco Merone MBA
Shire Plc is a biopharmaceutical company that used cash flows to buy back shares, increasing its gearing ratio in percentage but not in real terms. The author analyzes Shire's 2012-2013 financial reports to examine the impact. In 2012, Shire had $3.1 billion in equity with a cost of capital of 12%. In 2013, Shire bought back $500 million worth of shares at $29.19 per share, reducing its equity by 3% to $3 billion. While buybacks increase gearing, some argue they maximize value when shares are undervalued and cash has no better use. The analysis focuses on how financial strategies like buybacks impact metrics like gearing and WACC.
HOLT Cash and the Corporate Life Cycle White Paper11.2010Michael Oliveros
The document discusses cash usage and corporate life cycles from an investor's perspective. It finds:
1) During growth stages, reinvesting cash into high return projects creates shareholder value, while mature companies may create equal value by returning cash to shareholders.
2) The market values cash based on a company's investment opportunities - cash is discounted for mature firms with low opportunities.
3) As cash surplus increases beyond investment needs, risks of overinvestment, known as "agency costs", also increase as managers may pursue lower return projects against shareholders' interests.
4) Distributing excess cash through dividends or buybacks can create value when agency costs are high due to large cash surpluses and few
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SEE WHATS NOTEWORTHY IN PRIVATE EQUITY THIS WEEK /// ISSUE 137 - April 17th, 2014:
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The document discusses managing foreign exchange risk in corporate portfolios. It begins by explaining the three main types of foreign exchange exposures that corporations face: translation, transaction, and economic. It then provides details on accounting treatments for translation exposures, types of transaction exposures, and challenges with economic exposures. The document also discusses developing hedging programs to mitigate cash flow, fair value, and net investment risks. It outlines various hedging instruments available in onshore and offshore markets.
This chapter discusses international finance, accounting, and investment decisions from the perspective of a marketing manager. It explains how financial decisions can constrain marketing strategies. International money management, accounting practices, and the challenges of transferring funds across borders are described. The process for developing, selling, and reviewing international investment proposals is also summarized.
2005 Outlook Sectors and themes - Executive SummaryRichard Woolhouse
This document provides an outlook and investment strategy for global equities in 2005. Some of the key points include:
1) Major macro themes that may impact stocks include an expected revaluation of Asian currencies which could benefit Asian and European stocks but hurt US stocks, high corporate free cash flow could boost late-cycle spending plays, and the US consumer is expected to remain the slowest part of the US economy.
2) At the micro level, the focus is on high-quality stocks with stable free cash flow, companies engaging in "financial self-help", and large-cap stocks over small-caps.
3) Overweight sectors include luxury goods, European food producers, investment banks, oil & gas
I have recently written an article for The Treasurer magazine, published by The Association of Corporate Treasurers, on how different companies have arrived at their decision as to the most appropriate hedging policy for them to implement. In addition I also offer some thoughts on implementation issues. I hope you find this of interest.
IMF has launched Australia's largest class action against 12 banks, including the four major banks, challenging the legal validity of exception fees like late payment fees. The class action could be worth between $7.3 billion to $8.4 billion for IMF. It may negatively impact the major banks' earnings by 1.1-1.8%. Key uncertainties include the participation rate of the plaintiff class and the percentage of the claim value received in a potential settlement. IMF's success in the case could increase its share price to a range of $1.59 to $1.93, representing a 5 to 50 cents per share increase in net present value.
Similar to Imf initiation - in a class of its own (20)
Adveritas (AV1) - Is Adveritas the next Dubber (DUB) George Gabriel
We compare and contrast to ASX-listed, global, SaaS companies - AV1 and DUB. Given DUB is more progressed in its global SaaS sales journey, we identify key insights for AV1 investors, based on DUB's historical experience.
- Adveritas Limited (ASX: AV1) provides an anti-fraud SaaS product called TrafficGuard® that blocks mobile app install fraud.
- AV1's annual recurring revenue (ARR) has grown 78% in the last 6 months to approximately A$1.6 million, signed with global clients paying around A$250-300k annually.
- Key clients include Go-Jek, Rappi, MUV, Centauro, and Bukalapak, with contracts ranging from 12-24 months and minimum monthly payments of A$10k-A$32k.
STOCK SNAPSHOT - De.mem Limited - Water treatment tech with growing recurring...George Gabriel
De.mem (ASX: DEM) provides bespoke industrial water treatment solutions combining its (i) unique water membrane technology product suites and (iii) specialist engineering skills. DEM is improving revenue quality through growing recurring revenues and revenue diversification. Further valuation re-rating is possible as the company grows recurring revenues and drives to cash positive.
LatAm Autos (LAA) - Investor Presentation - 24 October 2017George Gabriel
Latam Autos (LAA) announces "visible path to cash positive".
Investors know this strategy works:
1. Build an online network of buyers and sellers, capturing dominant market share (and so creating barriers to new entrants and high switching costs for those trading outside your marketplace).
2. Monetise your network through upselling a range of higher margin products.
This strategy has been proven to work with realestate.com.au (ASX: REA) and carsales.com.au (ASX: CRZ).
LAA is executing this proven strategy for online marketplaces, with high volume growth in sales of high-margin upsell products (car insurance, car finance etc).
With LAA's dominant position in online car sales in Mexico and a strong upsell volume outlook, LAA has the confidence to announce a "visible path to cash positive", which is typically the catalyst for tech stock re-rating.
Henderson Global Group (HGG) - equity research initiation reportGeorge Gabriel
Best funds manager to buy is well positioned with product, people, performance, parent and price (5Ps of funds manager stock selection). We used this framework to pick HGG, and it proved to be a great call.
This document provides an analysis and recommendation on National Australia Bank (NAB). Key points:
- NAB is trading at a discount to peers and presents good value. Catalysts to close the price-value gap include continued growth in business credit, exiting the struggling UK banking operations, and ongoing recovery of interest margins.
- NAB's recent trading update was in line with expectations, with stable asset quality, well managed costs, and flat customer margins, though UK banking remains weak.
- Potential catalysts for improving the valuation include further increases in total business credit which benefits NAB, a sale or run-off of struggling UK assets, and continued recovery of interest margins through pricing changes.
Tech Mpire (TMP) Business Overview - August 2017 George Gabriel
Not many tech stocks have all these attractive qualities: 1. organic revenue growth, up >3x in 2 years 2. Underlying profitability 3. Globally scalable market opportunity 4. M & A optionality 5. New CEO with sector-relevant experience (ex Google, youtube) ready to drive growth. TMP is ready to scale.
Tech Mpire (TMP) - Product Presentation - July 2017 George Gabriel
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Evolution of value investing - all roads lead to Graham and DoddsvilleGeorge Gabriel
The document discusses the evolution of value investing from its origins with Benjamin Graham to modern applications. It makes three key points:
1. Benjamin Graham is considered the father of value investing, developing its principles in the 1930s through books like Security Analysis and The Intelligent Investor. Warren Buffett has been very successful applying Graham's approach.
2. Value investing involves buying assets for less than their intrinsic worth. Modern value investors like Buffett have adapted Graham's framework to today's markets by considering different components of a company's total value, like future earnings potential.
3. There are six levels or components of a company's value that investors may recognize to different degrees, from net assets to intangibles
This document provides an analysis and summary of Australian banks from Evans & Partners. It ranks Westpac as the most preferred bank due to strong performance in wealth management and retail banking and sector-leading efficiency. ANZ receives a negative recommendation due to expected mean reversion in its above-peer net interest margin and ongoing investment costs weighing on profitability in Asia, where earnings were down 23% in the second half of 2012. The summary highlights structural challenges for ANZ including declining net interest margins as higher funding costs offset and competition increases across the sector.
National Australia Bank (NAB) is the analyst's preferred major bank stock due to its attractive valuation and growth potential. The report recommends NAB over Westpac and provides 10 reasons for this, including: 1) positive momentum in Australian retail banking from market share gains, 2) leverage to an expected recovery in business lending, and 3) opportunities to improve performance in the UK, New Zealand, and other divisions. The analyst upgrades their price target for NAB and maintains a positive view based on these company-specific growth drivers in an otherwise challenging sector.
Bendigo Bank (EBN) - finding an earnings base George Gabriel
Bendigo and Adelaide Bank (BEN) appears to be finding an earnings baseline, with the rate of cash earnings decline slowing in the second half of 2012. However, given its concentrated exposures to residential mortgages and deposit funding, BEN remains vulnerable to external shocks. Key drivers of BEN's earnings outlook are the residential property market, deposit funding costs, and system credit growth. BEN has an overweight exposure to residential mortgages and leads the sector in deposit funding, but has faced pressure from rising deposit costs.
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George hosted the Digital Disruptors Conference in 2015. He brought together ~200 investors and 10 senior executives to introduce their companies. Attached is his presentation.
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The CEO of McMillan Shakespeare (MMS) needs to achieve 49% cumulative profit growth by 2014 for his stock options to vest fully. This hurdle is in line with the analyst's forecast of 53% profit growth, providing confidence in MMS' earnings outlook. While the CEO has sold some options, he still retains over 1.4 million options and other incentives to drive continued strong performance at MMS. The analyst maintains a Positive recommendation on MMS based on the CEO's alignment of interests with shareholders through his equity incentives.
3PL has leading market share in Australian schools. It emerged from private equity ownership to scale globally. It has leading products Mathletics and Reading Eggs. The sale strategy was ambitious and success has not been linear along the way.
FSA, a personal insolvency restructuring firm and sub-prime home loan lender, has had a stellar run since this research piece was published. Many investors made great returns. Great CEO vision, strategy and execution.
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UnityNet World Environment Day Abraham Project 2024 Press ReleaseLHelferty
June 12, 2024 UnityNet International (#UNI) World Environment Day Abraham Project 2024 Press Release from Markham / Mississauga, Ontario in the, Greater Tkaronto Bioregion, Canada in the North American Great Lakes Watersheds of North America (Turtle Island).
SUSTAINABLE INVESTING UNVEILED: THE ROLE OF BOND RATINGS IN GUIDING GREEN BON...indexPub
The increasing urgency to address climate change has propelled sustainable investing into the spotlight, with green bonds emerging as a pivotal instrument for mobilizing the capital required for environmental projects. This study delves into the critical role that bond ratings play in guiding investments in green bonds, shedding light on how these ratings influence investor confidence and the allocation of funds towards sustainable initiatives. By employing a mixed-methods approach, combining quantitative analysis of green bond performance with qualitative interviews from industry experts, this research offers a comprehensive overview of the interplay between bond ratings and green bond investments. The findings suggest that higher bond ratings, often indicative of lower risk and better sustainability credentials, significantly impact the attractiveness of green bonds to investors. Additionally, the study examines the evolution of rating criteria to encompass environmental, social, and governance (ESG) factors, highlighting the shift towards more holistic assessments of investment risk and potential. This research contributes to the broader discourse on sustainable finance by providing insights into the mechanisms through which bond ratings can facilitate more informed and impactful green bond investments.
1. Stock Focus
IMF (Australia) (IMF)
1
IN A CLASS OF ITS OWN
RECOMMENDATION : POSITIVE
GLOBAL LEADER IN LITIGATION FUNDING
IMF is a global leader in litigation funding, measured by:
The $1.5bn value of its litigation portfolio;
An excellent track record (lost only 5 cases out of 147); and
Successful outcomes against mostly institutional defendants
including the likes of Microsoft, Ericsson and PriceWaterhouseCoopers.
UNCORRELATED TO MACROECONOMIC EVENTS
Litigation funding is an alternative asset class, with outcomes that are
completely independent of the economic drivers impacting other stocks
Accordingly, while it can also be traded around litigation events, inclusion of
IMF should enhance portfolio diversification and reduce volatility.
VALUATION SUPPORT
IMF is trading close to our liquidation value of $1.28 and below our
blended valuation of $1.96 (average of discounted cash flow and PE-
multiple approaches), offering a substantial margin of safety.
We believe IMF is trading at a discount because:
Its dividend distribution policy creates a volatile income stream; and
Growth in the litigation portfolio has slowed.
Catalysts include a smoother dividend distribution profile, portfolio growth
and case wins in scalable causes of action (such as the banks fees’ class
action and sub-prime mortgages litigation). We initiate coverage with a
Positive recommendation.
Trading Data
Last Price $1.41
12 month range $1.28 - $1.58
Market Cap $175m
Free Float $151m (86%)
Avg. Daily Volume 0.2m
Avg. Daily Value $0.2m
12 month return (historical) (4.6)%
Return on capital is forecast to decline in
FY13-14 as the current litigation portfolio
matures, but in absolute terms remains
attractive at ~20-30%.
IMF’s business model is highly scalable, with
litigation costs outsourced to third party law
firms. Profit margins consistently exceed 60%.
Earnings Forecasts
Yr to June 09A 10A 11A 12E 13E 14E
EBITDA ($m) 27.2 15.2 31.4 63.4 53.4 32.6
Rep NPAT ($m) 20.8 11.9 22.9 42.4 35.4 20.9
Adj NPAT ($m) 20.8 11.9 22.9 42.4 35.4 20.9
EPS (¢) 17.4 9.8 18.6 34.4 28.6 16.9
EPS Gth (%) 15.3 (43.7) 89.9 85.3 (16.8) (40.9)
PER (x) 8.1 14.4 7.6 4.1 4.9 8.3
PEG Ratio (x) 1.2 0.1 0.1 (0.1)
DPS (¢) 10.0 5.0 15.0 10.0 14.0 14.5
Yield (%) 7.1 3.5 10.6 7.1 9.9 10.3
Franking (%) 100% 100% 100% 100% 100% 100%
ROE (%) 32% 16% 26% 33% 25% 14%
EV/EBITDA (x) 4.2 8.6 4.9 2.5 3.0 4.8
Net Debt/EBITDA (x) (2.2) (2.8) (0.7) (0.3) (0.3) (0.6)
Int. Cover (x) (8.0) (8.3) (19.2) 23.7 21.0 13.1
Valuation (blended) $1.96
George Gabriel, CFA
ggabriel@evansandpartners.com.au
June 29, 2012
+61 3 9631 9853
2. 2
CONTENTS
1. Investment Considerations 3
2. Industry Overview 5
Industry History
Business Model
Regulation
Licensing
3. Business Overview 6
History
Competitive Advantages
People, process, performance
4. Shareholder Value Drivers 8
Litigation portfolio value
Net win rate
Time duration of cases
5. Valuation 10
Blended valuation
Liquidation value
Stock catalysts
6. Capital Management 11
Dividend policy
Share buyback
Convertible note
7. Risks 12
Competition
Contingency Fees
3. 3
INVESTMENT CONSIDERATIONS
We summarise key investment considerations below.
(i) Earnings are not correlated to other asset classes
Litigation funding is an alternative asset class, with outcomes being completely independent of the
economic drivers impacting other stocks. Accordingly, we expect that inclusion of IMF in a stock portfolio
will enhance portfolio diversification and reduce volatility.
IMF is also a relatively defensive stock, given the value of its litigation claim portfolio is counter-cyclical,
with volumes expected to increase post a cyclical downturn (eg. increased insolvency & continuous
disclosure cases).
Indeed, Chairman Rob Ferguson has said: “Whilst we at IMF do not wish instability, meltdowns and
whipsaw stockmarkets on anyone, it has to be said that all these events create a wonderful environment
for our business”.
(ii) Excellent track record
IMF has been operating in various forms since 1998 (listed since 2003). It has the longest operating history
and track record of any litigation funder (LF) in Australia, and possibly globally.
IMF has only lost 5 matters out of 147 since listing, and it is currently appealing the loss in Collyer Bristow.
IMF has won ~78% of matters it has commenced and withdrawn from 19% of matters. Importantly,
withdrawals cost less than $75k per matter, highlighting IMF’s strong focus on due diligence and risk
management prior to taking a matter to trial.
(iii) Attractive valuation
IMF currently offers valuation support, with the share price trading at only a slight premium to our
liquidation valuation of $1.28 per share and a material discount to our blended valuation of $1.96.
Our blended valuation is the simple average of our discounted cash flow valuation of $2.07 and PE
valuation of $1.86 (applying 10x PE to average of next three years’ EPS forecasts).
Our liquidation value represents the net present value of the liquidation of the current $1.5bn litigation
portfolio over the next 3 years, assuming that no more cases are commenced & operations cease in 3
years.
We believe IMF is trading at a discount to valuation because:
Its dividend distribution policy creates a volatile dividend stream; and
Growth in the litigation portfolio has slowed.
Catalysts include a smoother dividend distribution profile, portfolio growth and case wins in scalable
causes of action (eg. major banks’ exception fees class action applicable to other classes of consumer
exception fees; and sub-prime mortgages sales litigation applicable to other vendors of this asset).
4. 4
(iv) Maturing domestic market; offshore growth incrementally developing
A key shareholder value driver is the value of IMF’s litigation portfolio.
IMF has grown the value of its litigation portfolio over time, but our base case is that the value of the
portfolio will stabilise at ~$1.5bn.
Whilst the US remains a growth option, we believe it is 2-5 years before it will have a material
earnings impact – accordingly, we have attributed zero value to IMF’s USA litigation funding
business.
(v) Limited, ad hoc competition
IMF is the dominant Australian litigation funder. Competition is ad hoc, leaving IMF mostly uncontested as
effectively the primary LF challenging large institutional defendants such as Microsoft, Ericsson, Lehman
Brothers, the 4 major banks, the “Big 4” audit firms etc. Indeed, IMF’s smaller competitors often refer
major institutional litigation to IMF (eg. National Potato and Ericsson cases).
In theory, barriers to new entrants in litigation funding are low, but barriers to achieving scale are relatively
high (ie. expertise, track record, dealflow and access to capital).
There is little sign of scalable, institutionalised competition confronting IMF. However, the
theoretical risks are:
A large, offshore law firm enters the Australian market; or
It becomes permissible for domestic law firms to charge contingency fees.
We believe that the Australian market is no more attractive than offshore markets, so it is unclear why any
large offshore entrant would specifically target Australia.
Furthermore, IMF’s response to contingency fees would be to change its business model from LF to law
firm.
(vi) High scalability and operating leverage
IMF’s business model is highly scalable, with a relatively low fixed cost base and high variable costs
linked to the volume of litigation. Arguably, IMF’s existing infrastructure can support from $2.5-
$3.0bn of litigation claim value.
Currently, fixed costs comprise ~$3.2m of annual employee expenses and ~$3.0m of corporate/office
expenses.
Litigation management is outsourced to third party law firms like Slater and Gordon, Maurice Blackburn
Cashman and some smaller firms. In the last 12 months, IMF expensed ~$26m in third party legal fees.
5. 5
INDUSTRY OVERVIEW
Industry History
Historically, there was some debate as to the legal status of third party litigation funders. However, this has now
been unequivocally removed by endorsement of the High Court, Federal Government & Law Council of Australia.
Institutional litigation funders have grown to meet a market gap created by the rising cost of litigation, risk-averse
plaintiffs and the legal prohibition on contingency fees.
Historically, common law opposed litigation funding on the grounds of (i) maintenance; (ii) champerty; and (iii)
abuse of process. However, the High Court’s 2006 Fostif case over-ruled these objections on the grounds that
litigation funders provide:
(i) Increased access to justice in an environment of rising litigation costs;
(ii) Increased efficiency (particularly in the administration of complex multi-party actions); and
(iii) Commercial objectivity during legal proceedings.
Litigation funding has been quite common in insolvency matters where an insolvent company is financed by the LF
to pursue claims against third party defendants. It is only recently that litigation funders have facilitated the
conduct of substantial group claims.
Before the High Court’s Fostif case, litigation funders relied on statutory exceptions in specific legislation to
operate. However, the Fostif case removed the common law uncertainty and moved the policy debate onto
appropriate regulation and licensing of the sector.
Business Model
Litigation funders typically manage the litigation process on behalf of plaintiffs, assuming all the costs of litigation
but in return receiving an agreed percentage of the gross settlement achieved (typically between 15-40%).
LFs have evolved from insolvency matters to large class actions, especially securities class actions. Litigation
funding does not assist with the vast majority of civil claims in Australia due to the unattractive risk/reward
equation. Personal injury, workers compensation and other actions for which the risks may be predicted with
reasonable accuracy are generally funded by solicitors on a “no win, no fee” basis (eg. “no win, no fee” personal
injury law is Slater and Gordon’s primary business model).
Regulation
The regulatory context has evolved over time to become increasingly supportive of litigation funding companies:
March 1992. Part IVA of the Federal Court Act 1976 was introduced to enable class actions.
Sep 2006. Standing Committee of Attorneys General argued in favour of litigation funding.
Oct 2006. The High Court of Australia decided in the Fostif case to over-turn historical common law
prohibitions on litigation funding.
May 2010. Federal Corporate Law Minister Bowen announced Government policy to overturn the Federal
Court’s Multiplex case which created uncertainty by ruling that litigation funders were operating managed
investment schemes and so required specific Australian Financial Services Licences (AFSL). Instead, the
Minister took the view that court rules and procedures sufficiently regulated the conduct of litigation and so
litigation funders do not require separate licences.
Licensing
IMF has been advocating for further regulation on the sector. In fact, IMF is the only LF which currently has an
AFSL. Greater regulation would arguably benefit incumbents such as IMF as another barrier to entry is erected.
6. 6
BUSINESS OVERVIEW
History
IMF commenced operations in 1998 and listed in 2001. CEO Hugh McLernon initially commenced litigation funding
in a private vehicle in 1992. As part of its listing in 2001, IMF acquired the litigation funding businesses of John
Walker and Clive Bowman, both of whom remain investment managers with IMF today.
Competitive Advantages
IMF is Australia’s only listed litigation funder & possibly the world’s largest player. Its competitive advantages are:
(i) Long track record, indicative of its case selection skills and internalised corporate knowledge and a key
driver of a steady stream of case referrals;
(ii) Access to public capital, allowing larger institutional defendants to be prosecuted; and
(iii) Scale, which generates higher margins on the fixed cost base (comprising ~$3.2m in employee expenses
and $3.0m in corporate/office expenses).
Its competitive advantage is evidenced by the fact that other litigation funders often refer matters to IMF once the
original funder’s financial or legal resources have been exhausted, eg. The Uniloc case (vs Microsoft); the major
banks’ exception fee class action; and the Ericsson case.
People, Process, Performance
Given IMF is an alternative asset manager, analysis of its people, process and performance is relevant.
People
IMF has a total of 27 staff, of which 12 are investment managers with senior litigation experience. CEO Hugh
McLernon is highly regarded both within the legal industry and by the investment market. He is a former
barrister and Clayton Utz litigation partner (with 20 years experience).
Chairman Rob Ferguson has extensive senior corporate experience, was CEO of IMF from 2007-2009, and
was CEO of BT Investment Bank from 1985-1999.
Process
Similar to a private equity firm, IMF invests in <10% of cases it reviews. Key elements of its process:
(i) Commerciality. Initial focus on commercial over legal outcomes. The initial primary focus is on
identification on a defendant with financial capacity.
(ii) Legal analysis. Legal merits are then considered. The objective is to identify cases with a high
probability of success. This may involve internal analysis of the legal issues or engagement of external
advice from senior counsel or relevant industry experts. IMF generally prefers matters predicated on
documentary (and not oral) evidence.
(iii) Plaintiff class development. Building a plaintiff class usually occurs next. This may be through direct
marketing, or through online plaintiff class accumulation (eg. as in the major banks’ exception fee
class action).
(iv) Risk management. Risk management involves a combination of:
Careful case selection;
Case withdrawals with limited capital loss;
A portfolio approach to investing;
Maintaining a minimum cash balance to ensure financial liquidity does not undermine the legal
process;
Limiting total capital at risk on any individual matter by not over-investing relative to the overall
portfolio; and
Maintaining adverse costs insurance to cover litigation costs to a certain amount.
7. 7
(v) Case withdrawal. As a matter is developed and evidence accumulated, IMF may choose to withdraw
from a particular matter. This may be either because the evidence is not as compelling as initially
thought or because the plaintiff class may not have gathered sufficient scale.
Importantly, of IMF’s 25 withdrawals in total, the cost has only been $1.8m (less than 2% of total
invested costs) or $72k per case. IMF will outlay a small sum to initially explore and develop a case,
but it limits capital at risk if the matter is not considered legally robust or commercial.
Performance
IMF has been operating in various forms since 1998 (listed since 2003).
It has the longest operating history and track record of any LF in Australia, and possibly globally.
As at 23 Feb 2012, it had only lost 4 matters out of 130 since listing (3%) and won 78% of matters it has
commenced and withdrawn from 19% of matters.
TABLE 1: IMF TRACK RECORD
Source: IMF, EAP, as at 23 February 2012.
8. 8
SHAREHOLDER VALUE DRIVERS
There are three key shareholder value drivers:
(i) Litigation portfolio value;
(ii) Net win rate; and
(iii) Case duration.
Litigation portfolio value
A key value driver is the total value of litigation claims. Chart 1 illustrates the historical trend.
Since IMF listed, the lowest value of its litigation portfolio was $520m. Since then, the average value has been
~$1bn. Although IMF had previously targeted a $2bn litigation claim portfolio by June 2011, it peaked at $1.778bn
as at 30 June 2011 and has since declined to $1.535bn (as at March 2012).
CHART 1: IMF LITIGATION PORTFOLIO
0
250
500
750
1,000
1,250
1,500
1,750
2,000
Jun-05 Jun-06 Jun-07 Jun-08 Jun-09 Jun-10 Jun-11 Mar-12
IMF Litigation Claims Portfolio Value
A$m
Source: IMF, EAP, as at 23 February 2012.
There are opposing views on the outlook for the litigation portfolio claim value:
The bearish view is that IMF’s litigation claim portfolio has reached a permanent plateau at around ~$1.5bn.
The bullish view is that it takes 2-5 years before cases develop from a specific event.
For example, IMF is still pursuing defendants who sold toxic sub-prime mortgage assets (eg. Lehman Brothers)
during the Global Financial Crisis.
Also, IMF is potentially setting new precedent in the class action against the major banks on over-charging of
exception fees. If these matters are sustained, then IMF can potentially apply the precedents to wider
categories of defendants.
Also, over time, the US may become a real growth option for IMF. However, we believe it is appropriate to
grow incrementally in this market and not undermine risk management procedures in the search for growth.
Our base case view is that the portfolio stabilises at ~$1.5bn, but we believe upside risks exist.
9. 9
Net win rate
The “net win rate” is the percentage of litigation claim value which translates to gross revenue to IMF.
IMF estimates a 15% net win rate on their portfolio claims face value.
Our analysis of historical case wins confirms that a 15% assumption is reasonable.
However, we apply a more conservative 14% win rate in perpetuity in our base case so there is some
upside risk to our valuation.
Table 2 summarises the derivation of the 15% net win rate calculation. Note that the 15% of cases which IMF does
not win mostly consist of withdrawn cases (with very infrequent losses at trial).
TABLE 2: NET WIN RATE
Source: EAP.
Time duration of cases
IMF’s target is to reduce the time duration of cases to 2.5 years. Currently, it is within the 2.5-3.0 year range.
Since listing, IMF’s investments have had an average weighted investment period of 4.1 years and have generated
3.0x cash on cash return. However, shorter time durations have become possible given:
Litigation has settled many unclear legal areas.
Court efficiency has improved, eg. The “Rocket Docket” system in the Supreme Court of Victoria.
Institutional defendants are now unlikely to seek to deplete IMF’s financial resources as a litigation tactic given
it is now clear that IMF is well funded and retains ongoing access to public capital markets.
Our base case assumes a 3 year case duration across the IMF portfolio, so there is some upside risk to our
discounted cash flow valuation if cases are concluded sooner.
10. 10
VALUATION
IMF currently offers substantial valuation support, with the share price trading at only a slight premium to our
liquidation valuation of $1.28 per share and a material discount to our blended valuation of $1.96.
Blended valuation
Our blended valuation is the simple average of our discounted cash flow valuation of $2.07 and PE valuation of
$1.86 (applying 10x PE to average of next three years’ EPS forecasts).
Liquidation value
Our analysis of liquidation value is for the purposes of determining the “bargain price” at which investors can
purchase IMF shares.
Our liquidation value represents the net present value of the liquidation of the current $1.5bn litigation portfolio
over the next three years, assuming that no more cases are commenced and operations cease within 3 years.
Stock catalysts
We believe IMF’s discount to valuation is due to:
Its dividend distribution policy, which creates a volatile income stream. IMF did not distribute a 1H12 dividend
(though it may do so retrospectively at the FY12 result), which disappointed some investors.
Softness in the growth of the litigation claims portfolio.
Catalysts for improving the share price include:
More frequent, reliable dividend distributions. IMF could achieve this through a more “cross-cycle” approach to
dividend distribution, as opposed to distributing all of the excess cash over a certain threshold. We expect
investors will value steadily growing, reliable dividends more than infrequent but large ones.
Growth and diversification in the litigation claim portfolio.
11. 11
CAPITAL MANAGEMENT
Dividend policy
IMF considers the following issues in determination of its dividend:
Any excess over a cash or “near-cash” (ie. debtors) amount of $70m is available for distribution.
Consideration is given to whether there is a substantial use for funds in excess of $70m (ie. funding litigation).
Franking of dividends is determined by the magnitude of the dividend franking account. The policy is to pay
dividends to shareholders from earnings if they can be fully franked. There has not been an unfranked dividend
since 1H07.
Share buyback
On 11 August 2011, IMF announced an on-market buy back of a maximum of 12,320,171 ordinary shares (9.99%
of issued shares). To date, no shares have been bought back.
A similar buyback was announced on 10 August 2009. From September 2009 to May 2010, IMF bought back
996,829 shares (~1% of issued shares) at an average price of $1.42 a share.
Convertible note
IMF typically avoids bank debt, most likely due to the lumpy nature of its earnings.
Instead of bank debt, IMF raised ~$38m in convertible notes ($1.65 conversion into ordinary equity, with 10.25%
annual running yield) to fund portfolio growth to its $2bn target by 30 June 2011.
Classifying the convertible notes as debt, IMF reported gearing of 38% as at 30 June 2011.
12. 12
RISKS
Competition
IMF faces little corporatised, consistent competition in its core segment of prosecuting Australian institutional
defendants. The competition IMF faces in larger matters is ad hoc, mostly from:
Law firms (such as Slater & Gordon, McPherson & Kelly or Maurice Blackburn) or
Special purpose vehicles speculating on specific cases (eg. International Litigation Funding Partners, a special
purpose vehicle established by Canadian law firm Siskinds, pursued the Multiplex case. Also, Peter Gordon, a
former Slater and Gordon partner, has established Comprehensive Legal Funding).
Domestic competitors tend to be smaller operators focused on smaller commercial and insolvency matters, such as
Hillcrest Litigation Services Limited, Litigation Lending Services Pty Ltd and LCM Litigation Fund Pty Ltd. Ipernica
focuses on intellectual property matters, an area where IMF rarely pursues matters.
We do not believe that the threat of international new entrants is a real and present danger to IMF. International
players who operate corporatised litigation funding models include UK-listed Juridica (JIL) and Burford (BUR).
In theory, there is a medium threat of new international entrants, but we believe that these players are more likely
to compete on a global scale and not simply enter the Australian market in isolation because – to a foreign player -
there is nothing uniquely appealing which differentiates the Australian litigation funding market from other global
markets.
Consequently, we expect that the competition IMF faces for larger institutional matters will continue to be ad hoc.
Contingency Fees
The theoretical risk to IMF is that lawyers will be allowed to charge contingency fees on all cases.
However, there is no political support for this approach given it would move Australia towards the perceived
“ambulance chasing” model of the USA.
Even if Australia moved to this model, IMF could internalise the litigation function and effectively operate as a law
firm rather than outsourcing its litigation work.
However, the changes to the competitive environment would be substantial.
14. 14
RESEARCH RECOMMENDATION DEFINITIONS
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15. 15
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