Thanks Denk, appreciate the detail and hearing someone else's...

Thanks Denk, appreciate the detail and hearing someone else's thoughts on best way to forecast out income from current case book.

The maximum claim value they include in their quarterly updates for any given case is, by definition, rubbery and probably a little optimistic when the case is first taken on by IMF. At this early stage, perhaps they've done a little bit of in-house work and spent a few billable hours to assure themselves that the case has legal merit and is worth funding. They then sign a funding agreement, and at that point ascribe a maximum claim value to the case, which is reported in the quarterly updates. As the case progresses, and they spend more and more money on lawyers, and have more and more discussions with the client they're funding as well as the counterparty to the case, the estimated claim value obviously becomes a lot more certain.

The upshot of this reality is two-fold:

1) The best (most accurate) forecast of claim value resolved in a given financial year should be the one given immediately prior to the start of that financial year. For example, the estimate given on 30 June 2015 for FY16 resolutions should be the most accurate forecast of actual FY16 resolutions; the estimate given on 30 June 2016 for FY17 resolutions should be the most accurate forecast of actual FY17 resolutions etc.

2) The predictive power of their out-year forecasts is, more likely than not, rather low.

For example, your method takes the $925m forecast given on 31 March 2014 for FY16 resolutions, but do you really think, knowing the realities of their business, that IMF management had any clue how FY16 resolutions were going to shake out as at 31 March 2014? I doubt it. The fairer standard to hold them to would be the 30 June 2015 forecast for FY16 resolutions, which was $585.5m. Applying that standard changes the complexion a lot as follows:

	Column 1	Column 2	Column 3	Column 4	Column 5	Column 6	Column 7
1		2012	2013	2014	2015	2016	TOTAL
2	Forecast of CV resolutions given at end of prior financial year	643.5	585	765	700	585.5	3279
3	Actual resolutions in given period	625.00	243.00	395.00	610.00	540.93	2,413.93
4	Variance	-2.87%	-58.46%	-48.37%	-12.86%	-7.61%	-26.38%
5
6	Actual income	117.70	43.90	75.90	92.50	99.58	429.58
7	Income as % of forecast CV resolution	18.29%	7.50%	9.92%	13.21%	17.01%	13.10%

So, using what i think is this fairer standard (i.e. marking them against their last-in-time forecast before the given period commences, instead of taking the highest of 8 guesses), they've actually generated a much more palatable 13.1% of claim value, not 10.1%.

The idea of taking current CV of ~$3.4bn and multiplying by the 10.1% to suggest that only $340m income is going to come from the current book is, i think, way too harsh. Taking 10.1% of the highest CV estimate for the current book ($4,808m) to suggest $486m income will be generated from the current book makes more sense based on historical precedent, but i still tend to think that's a rather conservative method because of the strategic error (bank fees cases) affecting past results (the bank fees i'm sure was in the books for hundreds of millions of dollars at one stage, but management has admitted that funding a moonshot case, against an extremely well-funded counterparty, which required a change in legal precedent for a successful outcome, was a big strategic error on their part and they have since altered the business model as a result).

For the record, i originally modeled 17% of current claim value (17% * $3,370) to estimate that the current book will throw off ~$573m gross income at an implied MOIC of 1.70x which, when adjusted for net cash, gave me about $1.50 NPV (at 20% discount rate) on the current litigation book. If i drop my gross income estimate from the current book to $486m (i.e. 10.1% of highest estimated claim value using your methodology) yet keep everything else constant (i.e. same MOIC, discount rate etc.), the NPV of the current book plus net cash is ~$1.35, i.e. still >70% of today's $1.85 trade price.

If management comes out in July this year and reaffirms current expectations of ~$1.6bn CV resolving in FY18, and the stock is still trading around current levels, chances are i'll be adding substantially to my current holdings. I'll be doing so because i know they've historically generated ~13% of CV estimated at the end of prior financial year (as shown above), which would imply FY18 gross receipts of >$200m, gross profit of >$120m at around a 1.75x MOIC, and an EBIT of ~$90m given ~$30m annual overhead. I know earnings multiples are a terrible way to think about valuing IMF's business, but assuming a ~$50m net cash balance as at FY17 and FY18 EBIT of ~$90m, on current market cap of $315m gives EV of ~$265, for an FY18 EV/EBIT of (265/90) = <3. My personal view is that the stock won't trade at a 3x EBIT multiple for too long.