Ann: Hong Kong Case - Confidential Conditional Settlement, page-19

Hong Kong

Yes - the current favourable Hong Kong disclosure does not change my overall assessment of IMF-Bentham's value as to date. But that reluctance stems from the unknowns in the USA / Canada Capped Capital Investments, rather than this good report.

IMF - Bentham has had to do a lot of ground work in Hong Kong, due to, as I understand it, Hong Kong's traditional English(?) legal process, a process that has been late to come to the Third Party Funding of Litigation.

So the fruits of IMF-Bentham's ground work, are starting to roll in. Hopefully they'll be able to turn that pioneering work into a continuous & ongoing goodwill.



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Valuation of IMF-Bentham

I've not adjusted my valuation of IMF-Bentham as to what it was prior to to the launch of the USA Investment Vehicle as was announced in mid February 2017.

I believe there is to be a favourable outcome, but I as at yet cannot quantify the impact, as we don't have much information on completed contracts in the USA Canada, that will begin to frame the nature of the undertakings & financial commitments that will be unique to Capped Capital Investments.

So we are left largely with IMF-Bentham assurances and expectations that although the US Investment Vehicle's MOIC will be somewhat lower, the investment period will well shorten too.

What will the financial cost be? At this stage this is somewhat vague?

I use a DCF & EVA assessment of IMF-Betham, which based on June 2016 figures, as adjusted for my growth expectations based on disclosures (quarterlies & Case Investments) give me a slightly more prudent assessment of IMF-Bentham's worth than Jimmy-C. Both my EVA & DCF value IMF-Bentham at $2.62 / share, And I base a 75% (greater than 12.5% & less than 87.5%) likely price distribution range about that price, based on IMF-Bentham's current annual to June 2017 price volatility to be between $2.34 to $3.00. A range well above the current price.

Of which 89¢ / share odd is piled into a hefty dormant cash stash (as at June 2016)

I am largely in accord with Jimmy-C's operational analysis, although a bit more cautious in the translation of Case Investment into settled case income. So be it. I also consider I focus more on IMF-Bentham's capital cost structure, as a step from operations, to reach my ultimate pricing.

I'm perhaps overall more phlegmatic too. All well and good !

As always - thanks Jimmy-C [doffs cap] - for your thorough insight.


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Split into three? Partial DCF/EVA assessment

At the Mid February announcement of the Fortress FIG (NYSE) announcement and the USA Investment Vehicle. IMF-Bentham's value to my mind, was split into three distinct assets.

Part A - The traditional Australian & rather nascent Asian operations
Part B - The USA & Canada case investment outside the FIG Investment Vehicle (To be be wound down)
Part C - The USA & Canada Capped Capital case Investments to be lodged into the USA Investment Vehicle, and to be shared with our unwitting partners at FIG (NYSE) in a substantial venture, carved out by our directors - unilaterally.

Prior to February the Australian & Asian case investment's growth was plodding along at respectable rough 6% p.a. compounded, based on the split of the quarterly disclosures first offered from December 2014, whereas the USA & Canadian growth was well in excess of 110% compounded annually!

At this rate USA growth could not be maintained, as the traditional portfolio litigation funding is that big a drain on IMF-Bentham capital, such that it would soon exploit their entire operational cash flow & cash pile. In all likelihood - somewhere in operational year ending in June 2018 the coffers would run dry.

Additionally sourcing USA/Canada operations on expensive Australia share capital & debt raisings isn't smart.

So that said 2018 seemed to be the hurdle, at that time. If USA / Canada growth could be pared back, IMF-Bentham could have scaled the constraint without breach of the FIIG loan caveats on existing, rather expensive, Australian debt.

Doubtless the USA Investment Vehicle is a necessary strategy/obligation. Yet I image the FIIG lenders must view the USA Investment Vehicle with some slighted chagrin in so far as their duped restraint & loan caveats go, and are circumvented.

Lawyers!

My estimate is :-

Australian/Asian Asset - Part A is worth about 94¢ / share

To be wound up USA / Canada - Part B is worth about 56¢ / share

Part C is a the wild guess at this stage? I expect the USA / Canada business to grow to a scale bigger than that of Part B asset in 4 years, and thereafter maintain stabilising the ongoing capital cost of growth.

With these assumptions/dunnos; the ROIC is lower but shorter, the demands on FCF eased and the EVA margin compromised in capital costs to Fortress FIG (NYSE), Part C to be well worth $1.21.

But at this stage the assumptions are that broad, that Part C is a significant thumb suck.

Yet excluding Part C, the value of Part A, Part B and cash at hand exceeds the current price of this stock. (Today $1.94 / share)

As they say in the classics... "Go figure?"

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IMPORTANT I make these pricing estimates with every disclaimer. Please do your own analysis. Please make your own assessment. In no way do my statements diminish your risk.

As always.