Manolete Partners FY26 Results and Investor Presentation
On the surface, everything (bar the share price) is moving in the right direction. Number of cases has increased, the average value per case has increased, operational leverage is feeding through, the team is growing to provide the requisite capacity for growth and the average revenue per employee is up.
One of the most encouraging developments was management's decision to highlight NAV per share, which they now put at 97 pence. I'm pleased to see this because it's a metric I pushed hard with Will the new CFO, and it's the first time I've seen it featured in their presentation.
It should be noted that this is the net asset value of the balance sheet and places no value on the growing business as a going concern. The implication being that the share price should be significantly higher than this 97 pence level.
If management starts managing the business around NAV per share, it should improve capital allocation. The focus shifts towards compounding NAV, making faster settlements rather than extracting every last penny from each case. It also naturally raises the question of reducing the share count.
Management made it clear they want to repurchase shares. The constraint isn't intent but cash flow. Settlements are unpredictable, bad debtors create working capital swings, and they need the revolving credit facility to smooth those fluctuations. That leaves little excess cash for buybacks at this time.
As the case portfolio grows, cash flows should become more predictable, but for now they're prioritising debt reduction because the financing costs are meaningful.
All of this makes the cartel settlements even more important. Settling them sooner would allow the company to reduce debt, release and compound capital and eventually begin repurchasing shares. All of these things would accelerate NAV per share growth.
The other notable change was management's comments on insider buying. Previously they had dismissed the idea, but this time they said regulatory restrictions between the April trading update and today's results prevented directors from purchasing shares. They would not be able to flag insider intent to buy as that is MNPI, so any purchases will be disclosed through an RNS, but the explanation suggests a shift in attitude and perhaps that insider buying is now being considered.
If management is now focused on NAV per share, it's easy to see why attitudes may be changing. Opportunities to buy way more than 97 pence of value for 38 pence don't come along often, particularly when management has the ability to accelerate the catalysts that unlock that value.
A signal from management in the form of insider buying would very likely encourage external investors that this is a rare arbitrage opportunity. It ought to result in a re-rating of the shares and a sharp move higher in the share price.
thanks for your insightful post. I am mostly in agreement with your thesis. I was however dismayed by the CEO selling 100k shares eaarlier this week at 38p if that is not the worst possible msg to the market at the worst possible time i do not know what it is... its also such a small net amount for her after taxes that makes the whole thing difficult to understand.... what are your thoughts?
It was disappointing to see her sell 108k shares at that level. It coincided with her acquiring 175k shares under vested options, so she actually ended with 66k more shares than before the sale.
Management can sell for any number of reasons. There would undoubtedly have been a tax liability attached to the exercise of the options. Maybe this partially explains it.
But nonetheless, disappointing when insiders should be buying at these levels, not selling
I am adding more after this update. I wanted to do it given the growing disconnect to NAV compared to the expanding average revenue per case but the shift in management added to uncertainty. I am pleasantly surprised and I am sure your conversations with the CEO and CFO have helped. I find the mid term targets quite conservative though, with the ARRCC at 95k, and the average claim value in the forward book at 158k, they could achieve the 50% revenue increase just by the increase in claim value alone, not considering the growth in the portfolio. Although taking another look, I also see the forecasted value for the signed cases in FY26 is 111k which is higher than previous year but not quite there at 150k. So there should be some renormalization but the overall trend is positive and the Cartel cases might unlock more capital than they can use in the short term, so buybacks aren’t off the table. Even considering that the intrinsic value of Manolete should be above 1 x book value, the share price is so low that it makes sense to repurchase shares.
The problem is not that the market is failing to understand the NAV. The problem is that management has not yet proved that the NAV is reliably convertible into cash.
A 97p NAV per share is only meaningful if the underlying receivables and case valuations can be realised without repeated write-downs, provisions, delays and working capital leakage. Over the last few years, every time the business looks like it should generate value, something absorbs it: cartel write-downs, bad debts, delayed debtors, restructuring costs, higher working capital, or continued reinvestment.
That is why I do not think this is an “arbitrage”. It is a deep value situation with major execution risk.
The forward book may be £67m, but it is a management estimate of future revenue, not cash. The c.97p NAV is also not a hard liquidation value; it includes fair value assumptions on open cases and receivables. If those assumptions are right, the stock is very cheap. But the market has very good reasons to demand proof.
The biggest issue is that FY26 still produced almost no Adjusted Realised PBT after provisions, no meaningful free cash flow, and no reduction in net debt. If the business is so undervalued, they should prioritize buybacks and at the same time purchase shares with their own money, without excuses. We will see what they do...
I also disagree with the idea that the share price should automatically be above NAV because the company is a going concern. That would only be true if Manolete were earning a good return on that NAV and growing NAV per share consistently. At the moment, that has not been demonstrated.
For me, the burden of proof is now entirely on management. They need to show debt reduction, actual cash conversion, lower overdue receivables, fewer provisions, and ideally insider purchases. Until then, the discount to NAV is not irrational. It is the market saying: “show me the cash, not just the accounting value.”
You are looking at the company backwards. By the time proof is there, you will say that it was not obvious from the start. The average claim value in the forward book is at 158k, up from 124k. By comparison, the completed average realized revenue per case in 2026 was just 95k. A case worth 158k does not cost much more than a case worth 95k. That is the reason why book value seems to have stagnated. Look at the progress made before COVID, not after, if you want a more reasonable idea on what the IRR looks like. Their medium term target of 50% growth in realized revenues at 12% REALIZED gross margins does not seem unfeasible at all in this context, it’s conservative.
Wanting to buy a company at 39 per share compared to 97 per share and expecting there will be no hair in the investment does not make sense. The hair makes the investment possible. Inefficiency lies at the core of every investment. This one already has too many things going on: extrapolation bias, inattention of investors to realize the turnaround, complexity in understanding the distorted financials, low liquidity, time arbitrage…. I had my concerns on management and execution risk and looking at this refreshed management team and strong underlying performance of the insolvency market makes me think that the risk is substantially down.
It is still impossible to know whether the apple is rotten. In my view, the only signal that could come before hard evidence is insider buying by management; until then, it is better not to believe anything else, basically because nobody turns down free money. And if they do turn it down, the most likely explanation is that the apple is rotten. That is how I see it.
what i see reported is that CEO got 175,00 new shares for GBP 700 like an option exercise at 0.4p strike price (virtually for free) and inmediatelly sold more than 100,000 shares at 38p... am i missing something?
Felix agreed, her action does smack at shooting herself in the foot -just when Manolete gives its best news update in years and hints at the prospect of insider buying.
Mena Halton is no doubt a very accomplished leading insolvency lawyer, but her lack of perception as to how this action will be negatively perceived by shareholders just to save herself a few pennies leaves a lot to be desired.
Will Sawyer and senior managers now (more than ever) need to step up to the plate and put their money where there mouth is.
Yes, agree. She exercised 175k of options, sold 108k of stock, and is net up 66k shares while pocketing £40k+
It isn't a good look.
Here's the thing:
The business has unique attributes that give it the potential to be a stellar performer. Very few companies have an almost unlimited opportunity to reinvest earnings at high marginal rates of return. It is capable of generating strong double digit organic growth in perpetuity. It is a situation most other companies could only dream about.
But it doesn't matter that you have a Ferrari if the person behind the wheel doesn't know how to drive.
That sums up the problem with Manolete Partners at the moment (and historically).
As at Dec 24, large cases (over £500k value) were £13.4m of a £46m forward book of cases (29%)
As at Sept 25, large cases were £16.5m of a £56m forward order book (29%)
As at Mar 26, large cases were over £32m of a forward order book of £67m (48%)
That matters
Operating leverage kicks in with larger cases
The prior CEO was always focused on the number of cases, but he signed lots of capital intensive little cases, which killed margins. That was always the wrong metric
The average claim size in the portfolio prior to Covid was over £200k. Then it fell to £81k in the early 2020s. That's what hurt this business. That's why the increase in the number of larger size cases is so important. When operating leverage kicks in, margins increase. The reason? It doesn't cost that much more to litigate a £500k claim as it does to litigate at £100k claim.
But if claims take 13 months to settle , these are mostly newly signed claims, so the money won't flow until 2027 earliest
Once again if there are now more larger size claims available, the Cartel cases need to be settled and that money reallocated to signing more of these
Would love to hear your updated take after the call tomorrow, James! I wonder if the overhang of Steve selling off his remaining 5% position is holding this back and I really want to know what their plan is re. buybacks which would be hugely accretive at these levels!
In addition James, will you be asking Will Sawyer any specific questions at tomorrow's presentation? Or will you wait for that one-to-one interview which for all of us can't come soon enough!
"If it doesn’t at least double this year, I would be amazed." Instead, it is down 50%, which shows how difficult it is to time markets. I looked at the trading update of Friday and to me it looks like the investment thesis is playing out with growing number of employees, new cases, referrals and case sizes and a good market backdrop for Manolete. Very bullish in my opinion. As I read it, the market sold off mainly due to fears of a write off in trade receivables from some large cases in 2021 and partially on superficially weak top line figures. About the Cartel cases, they seem to be taking longer than you expected. Are you still expecting to see more settlements in the coming months, or will we need to wait until at least September for the second hearing?
Manolete are not in the second wave of Cartel cases. They will be in the third wave if these things ever go before the Court. They really need to be settled ASAP. They are a huge drag on performance. The current opportunity cost of keeping that capital tied up is huge. It's all down to the quality of the new management team.
This is a company with such a huge potential. But investing is more about the jockey than the horse.
Think about Apple. John Sculley nearly bankrupted that business, but Steve Jobs took over and it became one of the most valuable companies on the planet. Same company, different jockey, different result.
Is the new CEO the right jockey? Time will tell. The market is very much in a 'show me' mood.
Great research. I very much appreciate it. At the same time, I have some critical comments which make me think your upside case is a bit naive. I'd appreciate it if you give me an unbiased reply re: your thinking
- your discount rate is absurdly low. Why are you applying 8% for an illiquid micro cap that relies on SUBJECTIVE accounting, is exposed to binary legal outcomes and carries 9.4% debt? This is a rate you'd apply to Apple or something. A discount rate of 15-20% is way, way more appropriate here. This assumption alone changes the 2-5x upside completely.
- you're assuming they can afford to take much more debt (even at 9.4%). with the lumpiness of payouts and risk, I don't think taking on 3x the amount of debt would be very sustainable esp as growing & reinvesting
- you're assuming it can continue growing to 170M with the same win rate and return rate. What makes you believe the market is big enough? They already claim 67% market share in the market. How much more of a market is there?
- you're assuming the market will value the unrealized cases at least at 1:1 NAV, but you yourself say it's a very subjective (read: made up) metric. They had to write it down by 5m once. Pricing it at some discount to NAV is fair in my eyes and you're too optimistic here. Although historically I think the market has been even more optimistic?
I agree with you on the overall business model, their "moat", their good historical record and general happenings. But I don't see the upside.
So far, the stock price has fared against your assumptions (sorry about that). I want to ask you a year later - would you revise some of these calls?
My write up is an introduction to the company and my thoughts. I appreciate that everyone will see this differently. But whether you view it as having 2x upside or 5x upside does not undermine the attractiveness of the investment case.
Either way, let me try to address your questions in the order you raise them:
- I have been discussing with the new CFO the flaws of his predecessor with respect to the 'subjective' accounting as you call it. To be fair, he was simply trying to comply with IFRS9. There was nothing underhanded going on, so the stress on the word SUBJECTIVE may be a little too strong. They should be carrying claims at cost, which is not subjective at all and would have avoided the 2022 profit warning and 2025 write downs.
- Legal outcomes may be binary, but Manolete cherry picks the cases it takes, has a 93% success rate, only a 1% failure rate and the other 6% is where both sides decide to drop the case and walk away. This is not a traditional litigation finance firm, it is a de-facto asset mananger where the assets it acquires are legal claims. With such a high success rate, it means that risk is very low. I have factored this into my discount rates, but you are free to choose whatever rate you think is appropriate.
- As an asset management firm, it is focused on net interest margin. If it can borrow for 9% and generate a return of 16% on that money, the NIM is exceptionally attractive. In such circumstances, wouldn't you max out on volume?
- Manolete doesn't have 67% market share of the entire insolvency market, just of the segment where claims are being acquired. The rest operates either on a traditional fee arrangement or a no win/no fee. The market is slowly migrating to the acquisition model, so Manolete's dominance in that segment positions it well. Professor Walton's report on the insolvency market, now a few years out of date, suggests that claims are worth £1.5 billion annually, with an average case recovery of £250k. There is a huge TAM for Manolete.
The company has faced some headwinds:
- the rate of insolvencies fell to zero during Covid due to government measures and is only now recovering
- courts closed during Covid and the backlog once they opened meant that there were delays to obtaining judgement
- both of the above hit short-term revenues and profits
- the new Labour government in the UK withdrew tax benefits of investing in small companies on the Alternative Investment Market which caused an exodus of capital from AIM. All AIM listed companies saw a hit to market caps, Manolete included
- the company has zero analyst coverage and, one of its biggest weaknesses, is that it has no in-house investor relations. The third party it uses for IR are pretty hopeless and don't sell the company properly. Communications are poor, including earnings investor meetings
- low liquidity results in a wide bid/ask spread. That means that the share price can be up or down by 10% or more in a day. That kind of volatility scares most retail investors
- the market cap is too low to attract institutional investors at the moment
- the CFO was mediocre at best (he is now gone and his replacement appears to be far more competent, but we need more time to judge)
- the CEO stepped down last year and has now been replaced by his second in command, who has been running operations since 2013. She is a leading insolvency practitioner and knows the business inside out. There is continuity there.
- the business was booming pre-Covid when the average realised revenue per completed case was over £200k. When it fell to £81k after Covid, the unit economics were hit. Operating leverage went into reverse. The forward book of cases has an average of over £140k, so a recovery is well under way. As this number climbs, margins increase. That matters.
- the Cartel cases were, in my humble opinion, a mistake. While the vanilla insolvency cases settle in an average of 13 months, allowing money to be reinvested and to compound, the Cartel cases have been dragging out for a decade and have tied up too much capital for too long. The first of these settled last August, and I hope that the remainder will settle this year. This promises to deliver a cash windfall of half the current market cap of Manolete. It will be a catalyst for a re-rating.
- the company trades at about 60% of its NAV. That is madness for a business with an almost unlimited runway to reinvest and compound its capital at double digit rates. Most businesses struggle to grow organically at ~3% (hence GDP growth rates). Some achieve better results over the short term with M&A. But very few have the ability to continually reinvest capital at double digit returns over the long term. Manolete is one of the few.
In summary, my investment thesis has not weakened. The deterioration in the share price makes the thesis stronger than ever, particularly with the Cartel cases finally about to settle and the new CEO/CFO team introducing much needed management changes.
It is a mistake to confuse the share price with the share value. They are not the same. Judging the company based on the fall in share price is folly. The company is stronger today than ever before, but trades at 30% of its 2018 IPO price, and 10% of its all time high. Brightlight Capital describes itself as seeking to achieve long-term high risk-adjusted returns while preserving capital, with low net exposure to the market, through a concentrated portfolio of positions focused on small-cap value equities. It took a ~10% stake in Manolete last year at about 65p.
I am not trying to convince you to invest. I am simply explaining my thesis and why I am invested. Make your own decision. Seek professional advice. I hope this helps.
Thanks for the reply. Let me preface this in case I've come across as heavy-handed (I've been told I speak very bluntly) - I strongly appreciate your contribution to the retail investing space and admire your work. I agree with the majority of what you're saying and find it exceptionally high-quality.
On the places I disagree, I see as an opportunity to find truth. I am personally happy to be wrong here as I'd like to invest and make a good return as well.
Let me address your reply now. I agree with the majority of what is said, namely:
- IFRS9 is tricky; I wasn't implying underhanded shenanigans. Subjective means subject to change and being wrong, which is my concern. The market obviously judges that badly too (the big NAV haircut)
- I agree they pick cases. I could be persuaded to agree this demands a lower discount rate. I still think 8% is too low. Do you agree with me that for a company like Apple, an investor would usually apply a 7-10% rate? (US 10yr at 4%, equity risk premium at 4-5%). Under what argument would you not use a higher one for Manolete, even if their case count is solid? Further you're assuming the same case win % remains as they grow case count and revenue (in your model), which is an optimistic assumption. It's entirely unclear they can keep the same win %. If anything, it's way more likely for it to get lowered.
- Yes, in theory 9% borrow and return at 16% is attractive. But there is a cap on how much debt risk you're willing to take, as your margin of safety lowers. I argue that cap isn't infinite as you seem to suggest, and I'd argue it's relatively small/close to what we have today (in the next 1-3 years at least)
- Yes, there's more to the insolvency market. We can optimistically assume that 1.5B TAM has grown since that 2020 report to 2-3B. It is a huge TAM. It's unclear to me (and in this report) whether, how much, and how fast the market is migrating to the acquisition model. I agree with you that the TAM is probably growing. Without decent assumptions about market growth though, this isn't a solid case. I am certain Manolete would talk about this in their investor reports if they were confident in the TAM growth as well.
On the headwinds:
- AIM, Covid relief, courts during covid, zero analyst and dead bad investor relations, low liq & high volatility, low mcap making it inaccessible to smart/big money, CFO's lack of decent action, narrative of high insolvencies and profits dying. These are all very real and a great case to buy the stock today. It's been beaten up to the max. I can't see it get beaten up much more.
On tailwinds:
- Cartel will be a catalyst for sure. It should erase the debt entirely too. Sept is the second wave of hearings as far as I remember, and there was one call where they said their claims were then.
On NAV:
- The NAV is a subjective value metric. Some discount is fair. As I said they've had cases where they draw it down by 5m in a year. Why would you NOT discount that at a percentage that's above 0%? That being said, whether a 40% discount is appropriate is definitely arguable!
On growth:
- You said "The catalysts that drive this business are sums invested (which are growing) and returns on money invested (which are improving)". I argued in y other comment that neither is true. Do you agree with that?
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I am definitely NOT valuing the company based on share price. In fact it's the sole reason I'm suddenly interested in it :)
And I'm not here to criticize your writing either. I'm writing in our best interest in order to find the most reasonable potential bull case and therefore exit price.
The forward book of claims stood at a value of £46m in Dec 2024, just 9 months later at Sep 25 it was £56m. That's 25% growth in 9 months.
Case sizes are climbing which feeds operating leverage. The forward book average case size is over £140k, which is still lower than pre-covid £200k, but far better than the £81k in the trough following Covid.
More revenue, wider margins, all bode well for shareholder returns.
Manolete is not in the 2nd wave of Cartel cases to be heard in Sep 26. But it is negotiating out of court settlement. Liability has already been established. One of the defendants has already settled. I would be amazed if these were not all settled this year.
That's another big cash inflow to boost returns.
The earnings multiple is so depressed, when these catalysts occur, margin expansion is inevitable.
Bigger revenue, better margins and multiple expansion are multiplicative engines of shareholder returns.
Then there's the buy back. They sought authorisation to buy back 10% of shares at the AGM. They did this for a reason.
That's all four engines of shareholder returns firing. All are multiplicative.
I don't know what else to tell you. The risk reward skew is so assymetric at the moment - heads I win big, tails I don't lose - that it's a no brainer to me.
If you have doubts, move on.
There are plenty of other companies to invest in.
You need to have conviction, and I don't think you do with this stock.
That's fine.
I am not selling investment advice. I am not pitching the stock. I own it and try to share why. What you do with that information is your business.
> The catalysts that drive this business are sums invested (which are growing) and returns on money invested (which are improving).
But neither seems true.
- Sums invested are barely growing at ~3%. Can't even offset inflation.
- ROI has been declining. Realised margin has been falling (perhaps skewed by accounting), Lifetime ROI across all cases has been falling (perhaps skewed by new investments and time lag of them). It's only the vintage ROI that shot up in 2023 ([63%, 100%, 95%, 226%]) but it's been a one-off metric so it's premature to say it's improving.
See my prior comment . I believe it provides answers. In short, don't look at short-term numbers. Covid skewed those. Look at the big picture and make the requisite adjustments.
The share price of Manolete Partners, already severely undervalued, dropped further yesterday.
What's going on?
The dip was caused by a regulatory disclosure that ex-CEO Steve Cooklin had reduced his stake from ~9% to ~7%.
Cooklin was very suddenly replaced over the summer in a move that I know he had not anticipated.
Why do I say that?
It was a Thursday afternoon — he and I arranged to meet for a lunch meeting the following Tuesday. On Friday he dropped me a note, apologizing for the fact that he was forced to cancel our meeting. He said all would become clear. On the Monday news broke that he was being replaced with immediate effect.
Does that sound like it was planned or foreseen by Cooklin?
What happened?
We don't know. The company disclosed no details.
Perhaps Cooklin had a health diagnosis that forced the move (I hope not, but its possible). Or perhaps he was forced out by large shareholders.
Brightlight Capital, a US private equity firm had recently taken a 10% stake in the business. Maybe the events were connected.
Now back to Cooklin's share sale disclosure yesterday. Either hypothesis for his sudden stepping down as CEO would explain why he might look to reduce his holding and liquidate part of his position. There could be other reasons - tax liabilities to settle, or perhaps he is retiring and needs to transfer some of his wealth to an income producing asset.
The reason is less important.
Here's where it gets interesting...
A 12‑month daily average trading volume is reported at about 63,000 MANO shares per day. So the question arises, how did Cooklin find the liquidity to sell ~1 million shares in such a short time? Bear in mind that the share price has been trending lower in recent sessions, indicating more sellers than buyers in the market.
More particularly, who bought them? I wouldn't be surprised to see a take private attempt of this company by private equity. Maybe Brightlight Capital. They may be accumulating shares through the market at discounted prices up to the level at which they are required to make an offer... Doing so brings down the average price that they'll eventually pay for the business. Let's watch their next 13F disclosure to see if their holding is increasing.
In conclusion, I am still bullish on this investment and yesterday's share price drop, at a time when the market as a whole has been falling, is not in itself cause for concern.
I just wish the new CEO would have the common sense to launch a repurchase program. At this level it would be enormously accretive and arguably the best use of capital. At the earnings call earlier this week she explained that H1 had been soft because of some delays in claim settlements which meant that H2 would be very strong. What better time to repurchase heavily discounted equity? Authorization for buybacks was given at the September AGM, so they are a step closer - they just need to pull the trigger.
Perhaps lobbying the company is the solution. If you are a shareholder, drop the CEO a line and let her know your thoughts: mena@manolete-partners.com
I was looking at the aging of trade receivables and how it has changed over the past few years. At the end of FY2022 83% was not due; FY 2023 71% was not due; FY2024 74% was not due; FY2025 59% or 64% was not due. Why is it decreasing? Is it a concern? What do you make of the statement that “a small number of large debtors have delayed payment on settlement plans”?
As at the H1 FY25 release (30 Sep 25), in relation to receivables:
- 64% of debtors were not due yet. 88.5% of those were out of court settlements and the remainder were Court judgements. In both cases, payment terms are established but had not yet fallen due.
- 7% were a small number of large debtors, that were less than 3 months overdue, where the debtor had delayed payments but agreed on settlement plans.
- Of the remainder, 13% were between 3 and 12 months overdue, while 15.4% were more than 12 months overdue. It should be remembered that most claims are against delinquent directors. When judgement is achieved Manolete obtains a lien (charging order) on assets (perhaps real estate) to secure the payment. But if a house needs to be sold to satisfy the debt, these are illiquid assets that take time to monetize. This is par for the course in this business. Of course the debt carries interest, although arguably not enough to offset the opportunity cost of not reinvesting that capital in new claims at high rates of return.
Bad debts (those that are highly unlikely to ever be collected) account for 4% of revenue.
I am anticipating a trading update sometime in April (although the company has not committed to a date), which will provide more visibility of the state of play at the end of FY25. Mena Halton promised a strong second half to the year on the earnings call following pubication of the disappointing first half results. She explained it as timing issues with settlements and judgements, so that is also relevant to your question. Let's see what the company says.
I’ve been poking around and here are my latest thoughts on Manolete’s truck cartel cases. it seems that the Wave 2 CAT trial scheduled for September 2026 has been adjourned. I think this means OEMs now have less pressure to settle. Any trial with Manolete will probably be a couple years away. Any near term settlements will be highly discounted- maybe 50-60% of NAV. If Manolete settles the remaining claims soon they may only get £4 million (Mano’s share). That would still be helpful, but not what I had hoped. What do you think? I would love to be wrong. Of course, this is not their main business. Ultimately, Mano’s success depends on the success of their main business. But the turn around may not be as quick if they only get an additional £4 million from the OEMs.
The business model is to invest in insolvency litigation and to make a return on investment in a relatively short time frame with a high success ratio. This enables capital to compound quickly through rapid reinvestment.
The cartel cases have dragged on for a decade or more. Too much capital is tied up in those claims…. Essentially dead money until they are settled.
Management decided to sit on their claims while British Telecom and Royal Mail litigated on the same facts. That was Wave 1. The idea was to save legal costs. Once liability was established, a legal precedent was set for all future waves. With liability established, quantum of damages was all that needed to be agreed.
The problem is that Manolete failed to be included in Wave 2. This was probably what led to Steven Cooklin being replaced as CEO.
Now they are likely to be included in Wave 3, although it is in the interest of none of the parties for this to go to court. The defendants are liable. Why throw good money after bad by dragging it out and facing far larger legal costs? The defendants are, all else equal, liable for the legal costs of the claimants and interest on the damages (there are exceptions but I won't get too technical). So settlement is to be expected.
One cartel cases settled in 2025. Others are yet to settle.
In my opinion, the firm needs to draw a line under this and free up capital, even if that means taking a haircut.
A fundamental problem is that the company still describes itself as a financing business (see the footnote to the recent trading update). They are not. They used to be in litigation finance but now they acquire claims. They are an asset manager. This matters.
Why?
Lawyers typically seek to optimise recoveries for their clients. Litigation takes as long as it takes. But as an asset manager where capital is constantly reinvested, the time value of money needs to be considered. Opportunity cost needs to be factored in to decision making. Optimizing recoveries is not the objective, it's about optimizing portfolio returns. This is the bit Manolete has so badly wrong. It is being run by a lawyer with a legal mindset, not by someone looking through an asset management lens.
You know what they say, “To a hammer everything looks like a nail!”
The cartel capital needs to be released, these claims written down as a bad decision and the firm needs to get back to deploying capital in its core, very profitable, business model.
No idea why the trading update focused on free cash flow. It's the wrong metric for an asset management business. Net asset value per share ought to be the focus.
The shares are worth way more than the market suggests. Management needs to unlock that value. They have multiple levers to pull, but for some reason that I am unable to explain, they haven't pulled any yet.
Please see the comment I posted earlier on this thread in response to Alex.
To that I would add that gross cash receipts and case signings for FY26 are up year-on-year. From a cash perspective the Company has invested in new lawyers and in new cases, which has helped grow the forward book by £18m or 37% YoY.
As I said in that other response, this is an asset management firm and the correct metric to monitor is NAV per share, not free cash flow and arguably not income statement earnings either. Those are distorted by unhelpful accounting conventions (IFRS9, etc). They also book investment in cases not as CAPEX, but in operating cash flows (their auditor insisted on it apparently). This is important because as money flows in to the business from completed cases, it flows back out again in the form of investment in new cases. One largely cancels the other, so operating cash flow always looks weak, when in fact it is not.
I was discussing this with another investor earlier and he framed it with a back of the envelope calculation:
- Second year in a row they have recorded gross annual cash income at least £28m.
- MANO get their costs back (20% of gross) £5.6m to MANO
- That leaves net cash from those completed cases of £22.4m.
- MANO take 50% of that cash profit: £11.2m.
- So MANO retains £11.2m+£5.6m= £16.8m
- Take off annual overheads of £6.5m cash (16.8-6.5=£10.3m)
- This £10.3m may be a better indicatin of cash flow before reinvestment of capital
- The current market capitalisation is £21m, so if this back of the envelope math is anywhere near close to being correct, the company is capitalised at only 2x its cash generation. That makes it insanely cheap on a cash basis.
Once again, management have multiple levers to pull to unlock that value, but to date they aren't pulling any of them. This is a test of the competence of the senior management team.
Excellent article and another example of financial peak intelligence! I love this kind of stupidly undervalued businesses due to their incomprehensible financial structure. A small critique though, I do not understand why you said that it could become 3x discounting it at 8%, when the rate on their debt is 9.4%. Even considering the tax effect that would make the cost of debt lower, the cost of equity would be significantly higher. So I would place the WACC higher than 8%.
- It doesn't pay a dividend, so the cost is arguably simply a share of the upside as the enterprise value increases.
- But if it sold shares at £1.80 at its IPO and has used that money to grow, and is now able to buy those same shares back for £0.90, what is its cost of equity capital then?
Moving on from the theoretical cost of equity and its flaws, let's think about the unit economics of the business.
I calculate that it is making approximately 16.5% annually on invested capital. It has no shortage of reinvestment opportunities, so this should be the rate at which it compounds if all earnings are reinvested (remember, no dividends - which is a good thing in these circumstances). But if it augments reinvested earnings with debt, then its rate of reinvestment is greater than 100% of earnings, so its compounded growth should be greater than 16.5%.
If it can borrow at ~8% and generate ~16.5% on that money, its net interest margin is a whopping 8.5% (something banks could only dream of achieving - their net interest margin being the difference between deposit rates and lending rates). So, with such a huge net interest margin, it should optimize leverage.
But that brings us back to the allocation of capital - which should always be determined based on opportunity cost. If the shares trade at less than 50% of intrinsic value, then allocating capital to repurchasing that equity (and locking in a negative cost of equity capital) would yield a far more accretive result (>100%) than reinvesting in new cases yielding an annualized 16.5%. The company has headroom on its debt facility and while its former CEO was dogmatically focused on reducing debt at any cost, the better decision would be to reduce equity financing within the business while the share price is so depressed. At the AGM, a resolution was passed granting it authority to do so, but so far no repurchases have been made which is somewhat disappointing.
The question is, are management competent enough to make the right decisions. The company now has a new CEO - Mena Halton. We will need to wait and see which levers she decides to pull.
Thank you for your answer. I have read your article just now and answering to your question posed in your article: "if the two smartest investors of our time - Buffett and Munger- don’t trust these tools, should you?". I would say that you are looking at this from a purely theoretical perspective, not a practical one. I am not impressed that Buffet or Munger would not use WACC either, because they refuse to use DCF in the first place. My view on the cost of equity is much simpler: I view it as the cost on my capital, as an investor, not the cost for the business. The reason why this makes much more sense is simple: if a business buys back 50% of their shares, the market cap would be the previous market cap minus the cash that was spent. In other words, the share price would roughly double, minus any decrease due to less cash. So you can basically never fully repay equity. If we assume you could buyback all shares, at some point you would have 1 share that is worth the entire business. If I run a DCF model, I will use at least 15% as my cost of equity, because I am not investing in a stock if the returns are less than 15%. Why bother taking the risk and mental overhead of investing in a stock when you can buy the index? I need a higher reward to justify for it. In this sense, the math makes perfect sense: the cost of debt is fixed, so a DCF tells you how much you would get in return as an equity investor. It is true that you could say, but why use a DCF when the Warren Buffet does not use one? but that would be an argument of authority, not a logical one. I used not to use DCFs, until I read an opinion on the contrary that by using a DCF, you need to really think more deeply on every financial line item, so the assumptions you are making are actually more explicit than just using ratios or back of the envelope calculations. So that is what I do.
The market only functions because we all have different approaches to valuations. If everyone did it the same way, the share price would settle at fair value on a NPV basis and there would be no mis-pricing and no real investment opportunity.
At the AGM today, all resolutions were duly passed - that includes the right to repurchase upto 10% of the shares outstanding.
Manolete made a pre-AGM trading update announcement earlier today, which on the face of it appeared soft, but the important part is this: “The level of activity throughout the year for Manolete is not linear, and a number of higher value completions are expected over the coming months alongside a strong pipeline of potential case signings. The Board is confident in the outlook for the business for the full year but realised revenues are expected to be significantly weighted towards the second half of the financial year.”
In short, the first half of the year did not see as many large case completions (only one of the Cartel cases closed), but the others are due to close and the second half of the year is expected to be strong. The quote above hints that the other cartel cases may settle in the second half of the year. Collectively they are worth over 25% of the current market cap of the company.
The issue, as today's activity proves, is that the market tends to price short-term earnings quickly but often misses the gradual, multi-year improvements. The immediate reaction of the market was negative, but I am sure this is a temporary thing.
The reason that the share price has rallied strongly from mid-70s to 118 recently was because the market was front running the company in anticipation of a buy-back. This was actually bad news for long-term shareholders because repurchases become more costly. With this in mind, the pullback in the share price today is most welcome. Hopefully Manolete will now seize the opportunity to repurchase shares at a lower cost and so retire a larger percentage. This is all good news for long-term shareholders.
Hi James. Curious about your thoughts on the recent trading update. They obviously signaled “not so great 1H but expect a big 2H” at the AGM. But wondering if your thoughts on the outlook have changed and what you think about new mgmt. Frankly, now would be a pretty good time to buy back some shares. They have the approval and the share price is in a free fall. Thanks!
The new CEO has only been in post for 3 months, so it is too soon to judge her. She has also been operating without a proper CFO. Taverner resigned in February and the new CFO starts in December, so they've had a junior finance girl running the numbers, but she is no substitute for a seasoned CFO.
The old CFO (I was no fan of his), was a career accountant from Deloitte who learned his trade in the audit department. He was not a corporate finance expert, Manolete was his first role as a CFO, he refused to take any meaningful investment in the business and he had no capacity to think outside the box. To him everything was a text book academic challenge. He designed the disastrous approach to meeting IFRS9 fair value accounting rules which has caused the company no end of trouble (profit warnings and asset write downs - all of which were avoidable).
I met with the new CEO last month and she told me that the new CFO is a corporate finance guy. I sincerely hope that he is and that he is prepared to bring about some necessary changes, while injecting some semblance of commercial acumen in terms of capital allocation decisions.
You correctly point out that H1 numbers were soft, but that was due to timing issues in the settlement of claims which is outside the control of Manolete Partners. Those claims that didn't settle in H1 will settle in the second half of the year, in addition to the claims that would have settled in H2 anyway. So H2 should be much better. If any of the Cartel claims settle, it could be a fantastic H2. We will need to wait until March '26 to find out.
Since H1 was soft, the company did not generate very much free cash flow. This would limit its ability to repurchase shares. That having been said, it did pay down some of its debt, so there was some surplus capital available. Capital allocation has never been a strong point at this company - I hope that the new CFO will change that.
My thoughts for what they are worth. If you are borrowing at 8% and able to generate an annualized return on capital of close to 17% (my calculations), then you would want to optimize borrowing. It's a 'no brainer' as they like to say in the US. But the company instead chose to reduce debt?!?!
There are two forms of capital available to a business: debt and equity. The latter is the most expensive form and so debt is usually preferred if available. Why issue equity and dilute shareholders when debt is readily available and can be paid down according to a contractual repayment schedule to augment shareholder returns? If you agree with this, then you must agree that the opposite is also true. The repayment of equity capital should always come before the repayment of debt, unless of course the share price is at a premium to intrinsic value. All of this suggests that sound economic theory would dictate that Manolete should not have reduced its debt, but instead applied that money to the reduction in the share count (especially at its current crazy low valuation). Again, a 'no brainer'. But it didn't do this.
I hope and pray that the new CFO has a commercial brain. The company needs one of those desperately on the board. If he does, and things start to change, this stock could more than triple in the next 6 months. If not, it may continue going nowhere.
It's not about how great the racing car is, it's all about who will be driving it around the race track.
The other thing to bear in mind is the operational leverage in the business. Following Covid the average case size dropped significantly from £>200k to ~£81k. A legal case takes a similar amount of effort, regardless of the amount being claimed, to smaller cases are less cost effective.
In recent years case sizes have been steadily growing again. This was mentioned on the earnings call earlier this week again. The focus of the business is to sign larger claims.
So if you assume that each case carries a similar cost, but the revenue it generates is increasing, you will understand that as case sizes trend back to pre-Covid levels (and perhaps beyond), margins will improve significantly and more of the top line revenue drops to the bottom line.
If H2 is as strong as management hint it will be, we should start to see this at the end of year earnings call early in 2026. Increasing top line, increasing margins and increasing profits usually lead to a higher earnings multiple. All of these things are multiplicative in terms of share price. If the company reduces the share count, that too is multiplicative. In short, Manolete could be about to start firing on all cylinders with multiple engines to generate outsized investor returns.
Interesting. Not sure what's going on, or why he stood down so suddenly. Perhaps he has health issues - if so, I hope it isn't anything too serious. But that would explain is sudden departure and liquidation of assets.
Thankyou for your clear analysis James. The shock news that none of the debt had been paid down initially fazed me in today's update, as this had been repeatedly and clearly promised. It gave the initial impression the company were using the pot ro 'scrape by' on emergency funds which is false of course.
My major grouse is still with this sclerotic Labour administration (Reeves, Tom Hayhoe and the Insolvency Service) and their seeming reluctance to fight fraud. You'd think the strident Jon Moulton would be more active in this regard as he's never been one 'to let the grass grow!' The issue was recently highlighted in the Financial Times which slated the Government's ‘Passivity’ in recovering Funds.
James, have you any idea of the total number of Cartel cases yet to close? I expect the share price to respond with a welcoming fillip as each and every one concludes in the next six to nine months. We brow-beaten shareholders are long overdue some 'good cheer!'.
In terms of numbers of Cartel cases, I do not have that, but could make some logical deductions. One of the Cartel cases settled for £3.2m in August this year. The remaining Cartel cases are valued at ~£10.5m, so assuming that they are all of a similar size (not necessarily a safe assumption), it would imply that there are three more to settle (probably +/- 1 tolerance on those assumptions). I hope that helps.
Don't get me started on Rachel Reeves and the economically illiterate Labour party.
Frankly, from my own past experiences in different fields, I would never bank on anything that depends upon politicians of any colour - red, blue, yellow or green. They always flip-flop and change policies. It's impossible to build a house on sand, and politics is the weakest of foundations for a businesss.
The other issue is that Manolete should be focused on operating leverage. The cost of pursuing litigation in terms of man hours is not a product of the sum being recovered. As such, the larger cases are far better from an economic perspective. The margins will be far higher. The BBL claims to recover government money were all small. Using the BBL claims to plug a gap while government special measures slowed down the rate of insolvencies following the pandemic was tactically sound as a decision, but it was never a strategic long-term objective of Manolete to pursue these claims. It should now put the BBL business behind it and focus on winning big lucrative claims.
Re. 'operating leverage' focusing only on larger cases: Would many HM Revenue and Customs cases qualify? The Challenge Recruitment Group I alluded to previously owing £90m in unpaid taxes for example. A 50/50 split on any recovered monies would swell Manolete's coffers exponentially.
The HMRC say that 'phoenixism’ (evading tax) is on the rise and are collaborating with the Insolvency Service to increase the number of prosecutions. Whether they deliver on that promise and Manolete becomes a major beneficiary only time will tell I guess.
Keep up your excellent work James you are always 'on the ball', and I hope that Mena Halton accedes to your request for an interview sometime soon.
This is very interesting, thanks, but I have a question. You write, “When an insolvent company has been wronged - often by dishonest corporate management - it lacks both the funds and the operational leadership to pursue litigation.” So if I understand correctly, Manolete is in some cases buying an existing claim brought by a bankrupt company against its own management. Who in general has filed such a claim? Clearly not management!
Imagine a situation where a company has debts and, in the knowledge that the business is struggling, a delinquent CEO extracts corporate capital - perhaps via another corporate entity he or his family own - and then declares bankruptcy as the liabilities of the business exceed its assets.
In such circumstances, the creditors will have an action against the delinquent CEO but may either not have the financial resource or the inclination to pursue litigation.
So along come Manolete Partners, buy the claim, perhaps for 30 pence on the pound, and the creditor is happy to have recovered at least some of his capital.
Manolete now owns the claim and pursues the delinquent director for the full sum owed.
Creditors can be big or small and may include the UK tax authority (HMRC).
The administrator/insolvency practitioner will have identified wrongdoing and it is they who usually make the introduction to Manolete Partners.
The beauty of the business model is that Manolete will buy the claim, but leave the administrator, insolvency practitioner and third party lawyers to keep working on the case. For these service providers, having Manolete fund the claim is a huge benefit. It ensures they will be paid and so effectively underwrites their cash flows. So it is a symbiotic relationship that encourages these people to bring meritorious claims to the attention of Manolete.
For Manolete, it means little to no cost in attracting new business - no advertising costs - no sales teams - instead, the business finds them via a pre-existing network and their reputation in this industry.
It really is a very elegant model.
They cherry pick only the best quality claims, so their success rate is over 93%. Their failure rate is less than 1% (claims lost in the Court room), with the difference being claims that were abandoned for one reason or another based on risk assessments (maybe new facts come to light, or maybe the delinquent director is found to have no assets to pursue as he himself had personal debts and fell into bankruptcy).
Either way, a 93% success rate on investments that usually give a cash return of perhaps 2x over a 2 year period is very attractive. The risk based returns are phenomenal. It's a "heads I win big, tails I don't lose very much" situation. Almost as good as running a casino. More particularly, with no shortage of new claims to pursue, reinvestment opportunities are abundant, so this is a compounding machine. Very few business models are this good.
Thanks--so, if I understand correctly, in such a creditor action against management, the bankrupt company is not a party to the lawsuit. I had thought that the only kind of claim that could be sold by the plaintiff is when the plaintiff is a bankrupt company, but I gather its creditors can also sell their claims, is that right?
Technically, Manolete stands in the shoes of the insolvent company which gives it standing to pursue delinquent directors for the benefit of creditors. The Insolvency Act 1986 allows legal claims of insolvent companies to be sold to third parties in this way. This was deemed appropriate as it would benefit all of the creditors if moneys could be recovered to meet at least some of the outstanding payment obligations. Administrators have an obligation to recover as much as possible for creditors and if selling the claim to Manolete at a discounted price is the least worst option, it satisfies it's legal obligation by taking that option. For the creditors, recovering something is better than nothing.
Manolete Partners (MANO.L) - An Interesting Development
For years, shareholders have urged the company to use excess capital to repurchase its deeply discounted shares, but management has consistently resisted. That stance may now be changing. With a new CEO in place, the upcoming AGM on 16 September will include a resolution to authorise the repurchase of up to 4.38 million shares.
Given the company has 43.81 million shares outstanding, this represents a potential 10% buyback. It is a welcome and highly sensible move, arguably the most accretive use of capital available today. After all, buying £1 of value for less than 50 pence should not be a difficult decision. If some shareholders wish to exit at depressed prices, the company can facilitate that and, in doing so, transfer meaningful value to those who remain.
This development could well serve as the long-awaited catalyst to unlock the stock’s hidden value.
Hi James. Do you think this 10 percent buyback will mark the first of many aimed at kicking Brightlight Capital's 70% goalpost further into the long grass? Will it turn into a war of attrition with each party in a mad dash to pick off all the cheap low-hanging fruit they can find?
I suspect Mena Halton is more 'savvy' than Cooklin and covertly an avid reader of your posts. And If she 'boxes clever' in her choice for an entrepreneurial CFO too, then this could indeed be the red-letter event to "unlock the stock’s hidden value."
No idea what prompted the change in strategy, but it is very welcome. The first of the Cartel cases settled bringing in £3.2m, which would cover a 10% buyback. There are several more Cartel cases due to settle. Maybe settlement is imminent. If more cash is coming in than the company is able to allocate to investing in new cases, repurchases are the logical choice while the shares remain so heavily discounted.
There is still a chance that a takeover bid is made.
I think that the coming 12 months are likely to see a complete reversal of fortunes for Manolete Partners. The shares are already up about 20% since Cooklin resigned, but they have so much further to go. I wouldn't be surprised to see 3x or more from here over time.
Although the company remains on a positive trajectory, its share price has come under pressure recently. The main reason is that Michael Faulkner, one of its longest-standing and largest shareholders, with a stake of around 12%, who had been liquidating his position, reportedly due to health reasons.
Because the stock trades on the Alternative Investment Market with very thin liquidity, the presence of a large seller like Faulkner has significantly disrupted the supply-demand balance, putting downward pressure on the price.
The good news is that the overhang appears to have cleared. Yesterday, Brightlight Capital stepped in and acquired Faulkner’s entire holding, giving him a clean exit and introducing a new major shareholder to Manolete Partners. With the selling pressure now lifted, the share price has already started to rebound.
The company settled one of its long-running Cartel claims recently and others are expected to settle soon. This will introduce a large cash injection into the company which it will use to accelerate its growth.
For Brightlight Capital, it seems as though the timing was perfect. This is likely to become a very lucrative trade for them. Brightlight runs a very diverse but concentrated portfolio of only 9 equity investments, unconstrained by geographic or industry limitations. This suggests a sniper rifle rather than a scatter gun approach, which is telling when they select a company like Manolete Partners for their portfolio.
I always keep my eyes peeled for your latest posts and greatly appreciate your detailed analyses. Long may they continue.
It appears that Michael Jonathan Faulkner is offloading all his shares (for reasons I hope you'll conjecture!) and the sale of another tranche of more than half a million was announced today.
With another putative 4.5 million shares to offload, I'm concerned this will prove a real drag on the share price for the foreseeable future.
Wouldn't it be better if Cooklin used his now bulging £3.2 million bank balance to purchase all of Faulkener's remaining 4,270,000 shares at an advantageous price in some mutually agreeable deal?
Imagine that.. acquiring 10% of your own stock in one fell swoop! That's a red letter day if ever I saw one!
Would you agree with this plan of action, or am I overlooking something here? It just appears to me this is a once- in-a-lifetime opportunity which needs grabbing by the throat!
People sell for a variety of reasons. I don't know Faulkner so I'm unable to ask him. But it would be a great opportunity for the company to repurchase a large block of shares with the settlement monies from the cartel case due early August. Alas, I don't think repurchases are on their 'things to do' list.
here's Steve Cooklin speaking at the MelloMonday event earlier this week. I typed a few questions at the end of his address pertaining to Faulkner and buybacks which I'm sure will elicit a few pithy comments from yourself.
I hope he takes your advice this time around. But you know already he's as stubborn as a dog or mule.. useful qualities i guess in his field of expertise!
Given the excellent returns on capital that he is able to generate, reinvesting capital would help grow the net asset value of the business. Repurchasing shares below intrinsic value is accretive to shareholder returns but it doesn't help grow the business - just the value of each share. So, all else being equal, reinvestment should always be the priority.
But this is a very simplistic view and all else is not equal.
If you take the view that Manolete Partners has an intrinsic value per share of £3.20, while those same shares trade at 80p, then the return on capital invested in repurchases is 400% - far better than the real rate of return on investment in litigation. Not only that, but there is no risk of a claim failing with this approach and there are no associated labour or third-party costs. So the value creation drops straight to the bottom line.
Now, let us assume that those shares are not retired, but instead held in treasury. As the market price comes back into equilibrium (which it would more quickly because the market would construe buy-backs as a positive signal and it would also reduce the size of the public float, thereby contracting the supply of shares available for trading), the company could then resell those shares back into the market realizing the uplift. That money could then be reinvested in new claims, which would turbo charge growth.
Decisions on capital allocation need to be made based on opportunity cost.
Wow such seismic changes in so brief a period of time has left me dizzy. I do wonder whether Brightlight Capital were implicated in instigating these changes in some way. All conjecture of course!
Share price is holding up thus far.
I'm guessing tomorrow's meeting with Cooklin is cancelled?
I eagerly look forward to your interview with Mena Halton if she will hastily agree to one.
Manolete has announced the successful settlement of one of its long-running truck cartel claims, securing £3.2 million in cash. This fully recoups its investment and includes a strong profit share, with payment due by 1 August 2025.
The economics are impressive: Manolete invested just £483k in this particular claim, implying a money multiple of 6.6x and a 560% cash return. With the broader trial for other truck cartel claims delayed until September 2026, the board saw this early resolution as a smart trade-off, favouring immediate cash that could be reinvested in new claims.
Manolete, often mischaracterized as a litigation finance firm, is more accurately described as a specialist asset manager. It acquires legal claims, manages them through to resolution and reinvests the proceeds at exceptional rates of return. In that light, early settlements like this are beneficial, as they free up capital for reinvestment and will enhance compounded returns.
But there's a downside. Because the settlement came in below the claim’s previously marked valuation, it triggers a non-cash fair value write-down of £836k, in line with IFRS-9 rules. This is a hangover from the Mark Taverner era, when litigation assets were marked to estimated market value rather than cost. Investors have long argued this approach is misguided, especially given the illiquid nature of these assets (there is no resale market and so their resale value is arguably zero) and the unpredictable nature of litigation claims where timing of settlement materially impacts the size of the settlement.
Based on this settlement, the company expects to take a further £1.1 million non-cash write-down on its remaining truck cartel claims in its interim results for the six months ending 30 September 2025. Combined with the current £836k, that brings the total write-down to £1.9 million. As of 31 March 2025, Manolete valued all its truck cartel claims at £15.4 million. With £3.2 million now monetized and £1.9 million written down, the net asset value of the remaining claims is expected to be about £10.3 million.
It should be noted that this is just an accounting issue. The settlement, as explained above, is good news and a great outcome. Investors that understand this business will appreciate this nuance. Unfortunately, most of the market do not, and will take the 'write-downs' as bad news invariably negatively impacting the share price.
This is the second time that Manolete's misguided approach to meeting IFRS-9 has backfired - the last time caused a profit warning in September 2022 which rocked investor confidence. With Taverner no longer CFO, this should be the moment for change.
This truck cartel investment was a rare divergence from Manolete’s core strategy. While pleased with the outcome and still optimistic on remaining claims, the company reaffirmed that it's unlikely to pursue similar Competition Law claims again in future. This is also good news as its core business yields impressive rates of return over far shorter time frames - a perfect recipe for high rates of compounded growth.
In short, the investment thesis remains firmly intact, and today’s news is a clear positive. If the share price reacts negatively, it may well present an excellent buying opportunity. The only disappointment is the company’s decision to use the £3.2 million proceeds to pay down debt under its Revolving Credit Facility with HSBC. Given the significant discount at which Manolete’s shares currently trade relative to intrinsic value, this represents a major missed opportunity to repurchase up to 10% of its own stock - a move that could have delivered substantial long-term value to shareholders and simultaneously sent a positive message to the market undoing the damage caused by the asset-write down and Manolete's misguided approach to meeting IFRS-9. C'est la vie!
Thank you for your very detailed analysis which is a great introduction the Manolete investment thesis. After “digestion” of this highly atypical / complex case, I’d have some questions / observations if I may. I try to play the devil advocate in order to rule out any potential structural weakness / risk which could make Manolete a value trap.
1. I understand the growth drivers will mainly reside in the higher value of the cases and I understand these case take longer to happen after the initial rise on litigation. Still, I am wondering if this “higher value case” are more difficult to sign.
In the paragraph on the champerty concept, you point “Champerty was ultimately recognized as providing a “social good,” allowing third parties to finance legal claims and so ensuring that access to justice wasn’t restricted by financial constraints”
This quote should imply that larger corporations may be less cash constrained .. then they do not need Manolete service ?!
I may be totally out of the book here as in a bankruptcy, the company is by definition always cash constraint whatever their size .. but from I have understood, Manolete is more focused on the “technical cases” where there is fraud .. and I wonder if these cases are still bankruptcy cases or not ?!
My fear would be that Manole may be restricted on lower value cases (which translate into lower profitability) because higher value companies just don’t need Manolete.
2. Considering Manolete buys claims, the higher the case, the more Manolete has to invest to buy in ? ie is there any capital constraint which may prevent Manolete to grow into higher case ? (I understand they don’t want to pay out dividend .. in order to grow equity .. which may validate my observation ?
3. As Manolete has to buy in the case and they have a finite equity, they end up subscribing RCF to generate new liquidity to fund new case. Considering the higher interest cost environment, this is a drag on profitability.
Does Manolete benefit from any “cost of money compensation" when they successfully close case ? This would balance their higher interest debt burden.
4. The constant increase in referrals is very positive (20%-25 CAGR). It show the prestige of the company and reduce the marketing needs. Still, this doesn’t transfer into a growing number of case at the close of march 31, 2025 : 282 cases vs 276 in 2024. How to explain this flattish number of cases despite higher referrals ? (I don’t have the “overall value of the ongoing case” which may be indeed growing)
5. I understand that Manolete is quite safe of the legal side as they have proved almost 100% success rate on cases. STILL, this doesn’t always mean with “good profit” as I have noticed an increase amount of “bad debt provisions in the last years :
• 2019 : 49k GBP
• 2020 : 535k GBP
• 2021 : 1366k GBP
• 2022 : 321 kGBP
• 2023 : 1534k GBP
• 2024 : 1362k GBP
• 2025 : 1343k GBP
These provisions represent quite a heavy charge compared to the 20-30M GBP revenues.. I wonder how to explain this sudden bad provision increase .. as there was almost none pre 2018 ?
If there any way Manolete can contain this risk ?
6. With the CFO departure, is there a possibility that the company will change their IFRS 9 accounting ?
7. Apart from the accountancy policy which seems a low hanging fruit, what others initiatives can implement the future CFO to boost ROE ? I don’t know if any sharebuyback makes sense even at a current value of 1x P/B .. as the capital is needed to fund the future business.
8. When did the company buy the truck cartel claim and how much did they invest to buy this claim ?
9. I think your chart on the ROI metric is an interesting idea to show the ROI over time. However, I think you should have used a trailing metric on the “% uplift on capital invested” (green bars) to show the IRR instead of the overall value generation since inception (ie 48% over 9 years since 2017 doesn’t seem “that profitable”). I suggest to use a 24 trailing month IRR metric which track the “normal” cycle of the cases (from the initial funding to the final down payment).
I’ll try to address each in turn with a brief comment:
1. Litigating a case involves lawyers exchanging communications and preparing for a Court hearing in the event that settlement cannot be agreed between the parties. The work load is broadly the same for a claim valued at £25,000 as it is for a claim valued at £1m. So there is operating leverage in the business. Margins are bigger on the larger claims. The average claim size pre-Covid was ~£200k, but because of special measures introduced by the government to protect businesses from insolvency, it fell to ~£80k. That impacted margins. However, it is now moving back up, currently ~£120k and anticipated to move above £200k in due course. The second part of your question appears to be a misunderstanding on your part. Consider the Cartel cases – valued at north of £15m – these were businesses that were driven to bankruptcy because the big truck manufacturers illegally fixed prices, squeezing the margins of their customers and introducing financial strain that proved fatal. Manolete will sue the big truck companies on behalf of these insolvent claimants. If it wasn’t for Manolete, these claimants may not have had the financial fire power or determination to sue huge multinational truck manufacturers (kind of a David and Goliath situation).
2. As stated above, formerly the average size of a claim was £200k. The company has a net asset value of ~£45m and a revolving credit facility of ~£20m, so investing in larger cases shouldn’t be constrained by lack of financial resource.
3. Manolete earn about 17% annualized on investment. If they are borrowing at single digit rates, it looks like good business to me.
4. Case numbers are a red-herring. Ignore them. I have no idea why the company quotes them as a metric. I would rather have one case worth $1m than 10 cases each worth $100k. It’s the average value per case that matters most.
5. Winning a case is one thing, securing settlement from the other party is something else. Sometimes the other party will pay without any trouble, other times the judgement needs to be enforced. There is always a risk that they don’t recover all damages that they are awarded so provision needs to be made, but just because there is a provision, doesn’t mean that it is utilized.
6. I hope that the new CFO will be more commercially minded, rather than being just a dull accountant.
7. Settlement of the Cartel cases and reinvestment of that money will be a key catalyst. Buying back shares is something they should be doing but have refused to do. Focusing on larger sized cases to bring up their average case size is important.
8. The Cartel claims have been going on for almost a decade. It isn’t typical Manolete business. Most of their cases settle within 2 years from start to finish. Although these cases will land the company a huge windfall, they have acted as a drag on performance – which is why the company quotes its returns excluding the Cartel cases. Returns on investment are annualized and so the more time it takes, the lower the annualized return will be. These claims need to be settled ASAP and the money reinvested at higher rates of return. Liability is already established, so it is a question of ‘when’, not ‘if’.
Hello James, thanks a lot for your high value feedback!
I agree Manolete is poised to have a better future with settlement of the truck cartel claim, astute initiatives from the future CFO, general tailwind for their litigation services due to falling economy .. but I think the core of the thesis relies on the higher value case which should soon emerge after the long administrative process for larger corporation.
10. I wonder if there is any extra “hidden leverage” on these higher value cases ?
I understand Manolete will be able to invest more funds in the claim while having the same costs for enquiry meaning higher IRR when settled. But can Manolete invoice any other fee to their litigator customer if the case is settled ?
If settlement is positive, Manolete will win on their 200k claim stake and the customer will win on his 300k stake.
Can Manolete invoice any “extra success fees” to their IP customer which has recoup 300k GBP (say maybe 10% -20% of that amount?) or is Manolete revenue strictly limited at the pro-rata of the claim they bought (here 200k) ?
Manolete works on a discounting basis. If a claim is worth £500k (your numbers) and the person owning the claim has insufficient financial resource or will power to litigate, then that claim may never be brought. So Manolete acquire the claim. They may say to the owner that if the claim is not brought within the statutory time limit, then all potential value will be lost - he will receive nothing. So Manolete may offer £200k for a high quality claim and perhaps they'll also offer a percentage of anything achieved over that sum as consideration to buy the claim. Let's say 50% for the sake of argument. Now Manolete own the claim and all rights that flow from it. They are in the drivers seat and can make all decisions relating to the litigation. So let's say that they succeed and are awarded £500k, plus legal costs. So the prior owner of the claim, who had already received £200k upfront, gets another £150k. The residual £150k is for Manolete. But don't forget that their capital investment upfront was only £200k, so get £350k back for having investing £200k, so they recover their initial investment, plus a 75% return.
This is why I say it is asset management, not litigation finance. They are buying an asset and benefit from the uplift in its value. It is really no different to a private equity firm taking a stake in a start-up and then benefiting from a subsequent IPO. The different being that in in the PE space, they hope for 1 in 20 start-ups to succeed, and the gain is huge which compensates for the 19 that didn't make it. With Manolete, their success rate isn't 5% but over 95%.
Hi James, amazing writeup! Thank you for the effort and painting a realistic picture of the business. I wish you'd step in as interim CFO and implement the proposed accounting improvements. Now that Taverner is gone do you see any likelihood your idea getting adopted by management? Also having met with the CEO I'm sure you've pitched him this better accounting method, was Cooklin open to it?
I think that everything turns on who they appoint as the new CFO
It shouldn't be another text-book accountant from a big accountancy firm
It needs to be someone who thinks outside the box, understands the nuances of corporate finance, invests in the business personally and does what's best for the company
It would be a disaster to appoint another Taverner who is ticks none of these boxes
Cooklin is a nice guy, but he too is very conventional in his approach. Will he change things? I don't know. I have lobbied on the merits of repurchases, but he doesn't seem to buy the argument and simply offers excuses about restrictions on capital imposed by their bank, HSBC, which is a shame. If the bank is holding the business back, the answer is simple. Change bank. But banks don't oppose companies paying dividends, so why would they stand in the way of timely stock repurchases? It doesn't make sense to me.
The settlement of the Cartel cases is key. Management need to start thinking like asset managers - the optimal settlement will be determined by a combination of timing and quantum. At the moment, the value of these cases is sitting as dead money not working for the business. They need to release it and redeploy it at a higher ROI.
Key skill sets are certainly missing at management level. Maybe the new CFO will bring those. If not, they need to add to the team to fill that void.
The company is hugely undervalued - the question is simply when will the re-rating occur. Once again, it all turns on settling the Cartel cases and redeploying capital in more vanilla cases.
May be worth reaching out to Jon Moulton, who’s the majority owner, he could knock some sense into management to take these obvious wins. Happy to help petition on this anyway.
26 June 2025 - Audited results for the year ended 31 March 2025
Steven Cooklin, Chief Executive Officer, commented:
"We are delighted to report our highest ever revenues of £30.5m for FY25 and a strong increase in profitability, well ahead of market forecasts. Cash generation has also been particularly impressive with a 45% increase in gross cash receipts for the year. In FY25 we also recorded lifetime highs in the number of new case referrals from Manolete's nationwide proprietary referral network. FY26 has got off to a strong start with new case signings already 27% higher than the whole of Q1 FY25 and further concrete evidence of larger average case sizes feeding into our portfolio of more recent case signings. The continued strong tailwinds of challenging market conditions faced by many UK corporates provide the Board with optimism for further good progress in the new financial year."
Manolete Partners FY26 Results and Investor Presentation
On the surface, everything (bar the share price) is moving in the right direction. Number of cases has increased, the average value per case has increased, operational leverage is feeding through, the team is growing to provide the requisite capacity for growth and the average revenue per employee is up.
One of the most encouraging developments was management's decision to highlight NAV per share, which they now put at 97 pence. I'm pleased to see this because it's a metric I pushed hard with Will the new CFO, and it's the first time I've seen it featured in their presentation.
It should be noted that this is the net asset value of the balance sheet and places no value on the growing business as a going concern. The implication being that the share price should be significantly higher than this 97 pence level.
If management starts managing the business around NAV per share, it should improve capital allocation. The focus shifts towards compounding NAV, making faster settlements rather than extracting every last penny from each case. It also naturally raises the question of reducing the share count.
Management made it clear they want to repurchase shares. The constraint isn't intent but cash flow. Settlements are unpredictable, bad debtors create working capital swings, and they need the revolving credit facility to smooth those fluctuations. That leaves little excess cash for buybacks at this time.
As the case portfolio grows, cash flows should become more predictable, but for now they're prioritising debt reduction because the financing costs are meaningful.
All of this makes the cartel settlements even more important. Settling them sooner would allow the company to reduce debt, release and compound capital and eventually begin repurchasing shares. All of these things would accelerate NAV per share growth.
The other notable change was management's comments on insider buying. Previously they had dismissed the idea, but this time they said regulatory restrictions between the April trading update and today's results prevented directors from purchasing shares. They would not be able to flag insider intent to buy as that is MNPI, so any purchases will be disclosed through an RNS, but the explanation suggests a shift in attitude and perhaps that insider buying is now being considered.
If management is now focused on NAV per share, it's easy to see why attitudes may be changing. Opportunities to buy way more than 97 pence of value for 38 pence don't come along often, particularly when management has the ability to accelerate the catalysts that unlock that value.
A signal from management in the form of insider buying would very likely encourage external investors that this is a rare arbitrage opportunity. It ought to result in a re-rating of the shares and a sharp move higher in the share price.
The market is watching closely.
thanks for your insightful post. I am mostly in agreement with your thesis. I was however dismayed by the CEO selling 100k shares eaarlier this week at 38p if that is not the worst possible msg to the market at the worst possible time i do not know what it is... its also such a small net amount for her after taxes that makes the whole thing difficult to understand.... what are your thoughts?
Yes, I fully agree.
It was disappointing to see her sell 108k shares at that level. It coincided with her acquiring 175k shares under vested options, so she actually ended with 66k more shares than before the sale.
Management can sell for any number of reasons. There would undoubtedly have been a tax liability attached to the exercise of the options. Maybe this partially explains it.
But nonetheless, disappointing when insiders should be buying at these levels, not selling
I am adding more after this update. I wanted to do it given the growing disconnect to NAV compared to the expanding average revenue per case but the shift in management added to uncertainty. I am pleasantly surprised and I am sure your conversations with the CEO and CFO have helped. I find the mid term targets quite conservative though, with the ARRCC at 95k, and the average claim value in the forward book at 158k, they could achieve the 50% revenue increase just by the increase in claim value alone, not considering the growth in the portfolio. Although taking another look, I also see the forecasted value for the signed cases in FY26 is 111k which is higher than previous year but not quite there at 150k. So there should be some renormalization but the overall trend is positive and the Cartel cases might unlock more capital than they can use in the short term, so buybacks aren’t off the table. Even considering that the intrinsic value of Manolete should be above 1 x book value, the share price is so low that it makes sense to repurchase shares.
I think this is far too generous to management.
The problem is not that the market is failing to understand the NAV. The problem is that management has not yet proved that the NAV is reliably convertible into cash.
A 97p NAV per share is only meaningful if the underlying receivables and case valuations can be realised without repeated write-downs, provisions, delays and working capital leakage. Over the last few years, every time the business looks like it should generate value, something absorbs it: cartel write-downs, bad debts, delayed debtors, restructuring costs, higher working capital, or continued reinvestment.
That is why I do not think this is an “arbitrage”. It is a deep value situation with major execution risk.
The forward book may be £67m, but it is a management estimate of future revenue, not cash. The c.97p NAV is also not a hard liquidation value; it includes fair value assumptions on open cases and receivables. If those assumptions are right, the stock is very cheap. But the market has very good reasons to demand proof.
The biggest issue is that FY26 still produced almost no Adjusted Realised PBT after provisions, no meaningful free cash flow, and no reduction in net debt. If the business is so undervalued, they should prioritize buybacks and at the same time purchase shares with their own money, without excuses. We will see what they do...
I also disagree with the idea that the share price should automatically be above NAV because the company is a going concern. That would only be true if Manolete were earning a good return on that NAV and growing NAV per share consistently. At the moment, that has not been demonstrated.
For me, the burden of proof is now entirely on management. They need to show debt reduction, actual cash conversion, lower overdue receivables, fewer provisions, and ideally insider purchases. Until then, the discount to NAV is not irrational. It is the market saying: “show me the cash, not just the accounting value.”
You are looking at the company backwards. By the time proof is there, you will say that it was not obvious from the start. The average claim value in the forward book is at 158k, up from 124k. By comparison, the completed average realized revenue per case in 2026 was just 95k. A case worth 158k does not cost much more than a case worth 95k. That is the reason why book value seems to have stagnated. Look at the progress made before COVID, not after, if you want a more reasonable idea on what the IRR looks like. Their medium term target of 50% growth in realized revenues at 12% REALIZED gross margins does not seem unfeasible at all in this context, it’s conservative.
Wanting to buy a company at 39 per share compared to 97 per share and expecting there will be no hair in the investment does not make sense. The hair makes the investment possible. Inefficiency lies at the core of every investment. This one already has too many things going on: extrapolation bias, inattention of investors to realize the turnaround, complexity in understanding the distorted financials, low liquidity, time arbitrage…. I had my concerns on management and execution risk and looking at this refreshed management team and strong underlying performance of the insolvency market makes me think that the risk is substantially down.
It is still impossible to know whether the apple is rotten. In my view, the only signal that could come before hard evidence is insider buying by management; until then, it is better not to believe anything else, basically because nobody turns down free money. And if they do turn it down, the most likely explanation is that the apple is rotten. That is how I see it.
The CEO purchased shares yesterday.
what i see reported is that CEO got 175,00 new shares for GBP 700 like an option exercise at 0.4p strike price (virtually for free) and inmediatelly sold more than 100,000 shares at 38p... am i missing something?
i see it as a sale of 100k at 38p, i have a screenshot but cant attach it here. am i missing something?
Felix agreed, her action does smack at shooting herself in the foot -just when Manolete gives its best news update in years and hints at the prospect of insider buying.
Mena Halton is no doubt a very accomplished leading insolvency lawyer, but her lack of perception as to how this action will be negatively perceived by shareholders just to save herself a few pennies leaves a lot to be desired.
Will Sawyer and senior managers now (more than ever) need to step up to the plate and put their money where there mouth is.
So far, nobody has put any of their own money into the company.
Yes, agree. She exercised 175k of options, sold 108k of stock, and is net up 66k shares while pocketing £40k+
It isn't a good look.
Here's the thing:
The business has unique attributes that give it the potential to be a stellar performer. Very few companies have an almost unlimited opportunity to reinvest earnings at high marginal rates of return. It is capable of generating strong double digit organic growth in perpetuity. It is a situation most other companies could only dream about.
But it doesn't matter that you have a Ferrari if the person behind the wheel doesn't know how to drive.
That sums up the problem with Manolete Partners at the moment (and historically).
As at Dec 24, large cases (over £500k value) were £13.4m of a £46m forward book of cases (29%)
As at Sept 25, large cases were £16.5m of a £56m forward order book (29%)
As at Mar 26, large cases were over £32m of a forward order book of £67m (48%)
That matters
Operating leverage kicks in with larger cases
The prior CEO was always focused on the number of cases, but he signed lots of capital intensive little cases, which killed margins. That was always the wrong metric
The average claim size in the portfolio prior to Covid was over £200k. Then it fell to £81k in the early 2020s. That's what hurt this business. That's why the increase in the number of larger size cases is so important. When operating leverage kicks in, margins increase. The reason? It doesn't cost that much more to litigate a £500k claim as it does to litigate at £100k claim.
But if claims take 13 months to settle , these are mostly newly signed claims, so the money won't flow until 2027 earliest
Once again if there are now more larger size claims available, the Cartel cases need to be settled and that money reallocated to signing more of these
Would love to hear your updated take after the call tomorrow, James! I wonder if the overhang of Steve selling off his remaining 5% position is holding this back and I really want to know what their plan is re. buybacks which would be hugely accretive at these levels!
In addition James, will you be asking Will Sawyer any specific questions at tomorrow's presentation? Or will you wait for that one-to-one interview which for all of us can't come soon enough!
"If it doesn’t at least double this year, I would be amazed." Instead, it is down 50%, which shows how difficult it is to time markets. I looked at the trading update of Friday and to me it looks like the investment thesis is playing out with growing number of employees, new cases, referrals and case sizes and a good market backdrop for Manolete. Very bullish in my opinion. As I read it, the market sold off mainly due to fears of a write off in trade receivables from some large cases in 2021 and partially on superficially weak top line figures. About the Cartel cases, they seem to be taking longer than you expected. Are you still expecting to see more settlements in the coming months, or will we need to wait until at least September for the second hearing?
Manolete are not in the second wave of Cartel cases. They will be in the third wave if these things ever go before the Court. They really need to be settled ASAP. They are a huge drag on performance. The current opportunity cost of keeping that capital tied up is huge. It's all down to the quality of the new management team.
This is a company with such a huge potential. But investing is more about the jockey than the horse.
Think about Apple. John Sculley nearly bankrupted that business, but Steve Jobs took over and it became one of the most valuable companies on the planet. Same company, different jockey, different result.
Is the new CEO the right jockey? Time will tell. The market is very much in a 'show me' mood.
Great research. I very much appreciate it. At the same time, I have some critical comments which make me think your upside case is a bit naive. I'd appreciate it if you give me an unbiased reply re: your thinking
- your discount rate is absurdly low. Why are you applying 8% for an illiquid micro cap that relies on SUBJECTIVE accounting, is exposed to binary legal outcomes and carries 9.4% debt? This is a rate you'd apply to Apple or something. A discount rate of 15-20% is way, way more appropriate here. This assumption alone changes the 2-5x upside completely.
- you're assuming they can afford to take much more debt (even at 9.4%). with the lumpiness of payouts and risk, I don't think taking on 3x the amount of debt would be very sustainable esp as growing & reinvesting
- you're assuming it can continue growing to 170M with the same win rate and return rate. What makes you believe the market is big enough? They already claim 67% market share in the market. How much more of a market is there?
- you're assuming the market will value the unrealized cases at least at 1:1 NAV, but you yourself say it's a very subjective (read: made up) metric. They had to write it down by 5m once. Pricing it at some discount to NAV is fair in my eyes and you're too optimistic here. Although historically I think the market has been even more optimistic?
I agree with you on the overall business model, their "moat", their good historical record and general happenings. But I don't see the upside.
So far, the stock price has fared against your assumptions (sorry about that). I want to ask you a year later - would you revise some of these calls?
Stanislav
My write up is an introduction to the company and my thoughts. I appreciate that everyone will see this differently. But whether you view it as having 2x upside or 5x upside does not undermine the attractiveness of the investment case.
Either way, let me try to address your questions in the order you raise them:
- I have been discussing with the new CFO the flaws of his predecessor with respect to the 'subjective' accounting as you call it. To be fair, he was simply trying to comply with IFRS9. There was nothing underhanded going on, so the stress on the word SUBJECTIVE may be a little too strong. They should be carrying claims at cost, which is not subjective at all and would have avoided the 2022 profit warning and 2025 write downs.
- Legal outcomes may be binary, but Manolete cherry picks the cases it takes, has a 93% success rate, only a 1% failure rate and the other 6% is where both sides decide to drop the case and walk away. This is not a traditional litigation finance firm, it is a de-facto asset mananger where the assets it acquires are legal claims. With such a high success rate, it means that risk is very low. I have factored this into my discount rates, but you are free to choose whatever rate you think is appropriate.
- As an asset management firm, it is focused on net interest margin. If it can borrow for 9% and generate a return of 16% on that money, the NIM is exceptionally attractive. In such circumstances, wouldn't you max out on volume?
- Manolete doesn't have 67% market share of the entire insolvency market, just of the segment where claims are being acquired. The rest operates either on a traditional fee arrangement or a no win/no fee. The market is slowly migrating to the acquisition model, so Manolete's dominance in that segment positions it well. Professor Walton's report on the insolvency market, now a few years out of date, suggests that claims are worth £1.5 billion annually, with an average case recovery of £250k. There is a huge TAM for Manolete.
The company has faced some headwinds:
- the rate of insolvencies fell to zero during Covid due to government measures and is only now recovering
- courts closed during Covid and the backlog once they opened meant that there were delays to obtaining judgement
- both of the above hit short-term revenues and profits
- the new Labour government in the UK withdrew tax benefits of investing in small companies on the Alternative Investment Market which caused an exodus of capital from AIM. All AIM listed companies saw a hit to market caps, Manolete included
- the company has zero analyst coverage and, one of its biggest weaknesses, is that it has no in-house investor relations. The third party it uses for IR are pretty hopeless and don't sell the company properly. Communications are poor, including earnings investor meetings
- low liquidity results in a wide bid/ask spread. That means that the share price can be up or down by 10% or more in a day. That kind of volatility scares most retail investors
- the market cap is too low to attract institutional investors at the moment
- the CFO was mediocre at best (he is now gone and his replacement appears to be far more competent, but we need more time to judge)
- the CEO stepped down last year and has now been replaced by his second in command, who has been running operations since 2013. She is a leading insolvency practitioner and knows the business inside out. There is continuity there.
- the business was booming pre-Covid when the average realised revenue per completed case was over £200k. When it fell to £81k after Covid, the unit economics were hit. Operating leverage went into reverse. The forward book of cases has an average of over £140k, so a recovery is well under way. As this number climbs, margins increase. That matters.
- the Cartel cases were, in my humble opinion, a mistake. While the vanilla insolvency cases settle in an average of 13 months, allowing money to be reinvested and to compound, the Cartel cases have been dragging out for a decade and have tied up too much capital for too long. The first of these settled last August, and I hope that the remainder will settle this year. This promises to deliver a cash windfall of half the current market cap of Manolete. It will be a catalyst for a re-rating.
- the company trades at about 60% of its NAV. That is madness for a business with an almost unlimited runway to reinvest and compound its capital at double digit rates. Most businesses struggle to grow organically at ~3% (hence GDP growth rates). Some achieve better results over the short term with M&A. But very few have the ability to continually reinvest capital at double digit returns over the long term. Manolete is one of the few.
In summary, my investment thesis has not weakened. The deterioration in the share price makes the thesis stronger than ever, particularly with the Cartel cases finally about to settle and the new CEO/CFO team introducing much needed management changes.
It is a mistake to confuse the share price with the share value. They are not the same. Judging the company based on the fall in share price is folly. The company is stronger today than ever before, but trades at 30% of its 2018 IPO price, and 10% of its all time high. Brightlight Capital describes itself as seeking to achieve long-term high risk-adjusted returns while preserving capital, with low net exposure to the market, through a concentrated portfolio of positions focused on small-cap value equities. It took a ~10% stake in Manolete last year at about 65p.
I am not trying to convince you to invest. I am simply explaining my thesis and why I am invested. Make your own decision. Seek professional advice. I hope this helps.
Thanks for the reply. Let me preface this in case I've come across as heavy-handed (I've been told I speak very bluntly) - I strongly appreciate your contribution to the retail investing space and admire your work. I agree with the majority of what you're saying and find it exceptionally high-quality.
On the places I disagree, I see as an opportunity to find truth. I am personally happy to be wrong here as I'd like to invest and make a good return as well.
Let me address your reply now. I agree with the majority of what is said, namely:
- IFRS9 is tricky; I wasn't implying underhanded shenanigans. Subjective means subject to change and being wrong, which is my concern. The market obviously judges that badly too (the big NAV haircut)
- I agree they pick cases. I could be persuaded to agree this demands a lower discount rate. I still think 8% is too low. Do you agree with me that for a company like Apple, an investor would usually apply a 7-10% rate? (US 10yr at 4%, equity risk premium at 4-5%). Under what argument would you not use a higher one for Manolete, even if their case count is solid? Further you're assuming the same case win % remains as they grow case count and revenue (in your model), which is an optimistic assumption. It's entirely unclear they can keep the same win %. If anything, it's way more likely for it to get lowered.
- Yes, in theory 9% borrow and return at 16% is attractive. But there is a cap on how much debt risk you're willing to take, as your margin of safety lowers. I argue that cap isn't infinite as you seem to suggest, and I'd argue it's relatively small/close to what we have today (in the next 1-3 years at least)
- Yes, there's more to the insolvency market. We can optimistically assume that 1.5B TAM has grown since that 2020 report to 2-3B. It is a huge TAM. It's unclear to me (and in this report) whether, how much, and how fast the market is migrating to the acquisition model. I agree with you that the TAM is probably growing. Without decent assumptions about market growth though, this isn't a solid case. I am certain Manolete would talk about this in their investor reports if they were confident in the TAM growth as well.
On the headwinds:
- AIM, Covid relief, courts during covid, zero analyst and dead bad investor relations, low liq & high volatility, low mcap making it inaccessible to smart/big money, CFO's lack of decent action, narrative of high insolvencies and profits dying. These are all very real and a great case to buy the stock today. It's been beaten up to the max. I can't see it get beaten up much more.
On tailwinds:
- Cartel will be a catalyst for sure. It should erase the debt entirely too. Sept is the second wave of hearings as far as I remember, and there was one call where they said their claims were then.
On NAV:
- The NAV is a subjective value metric. Some discount is fair. As I said they've had cases where they draw it down by 5m in a year. Why would you NOT discount that at a percentage that's above 0%? That being said, whether a 40% discount is appropriate is definitely arguable!
On growth:
- You said "The catalysts that drive this business are sums invested (which are growing) and returns on money invested (which are improving)". I argued in y other comment that neither is true. Do you agree with that?
--
I am definitely NOT valuing the company based on share price. In fact it's the sole reason I'm suddenly interested in it :)
And I'm not here to criticize your writing either. I'm writing in our best interest in order to find the most reasonable potential bull case and therefore exit price.
The forward book of claims stood at a value of £46m in Dec 2024, just 9 months later at Sep 25 it was £56m. That's 25% growth in 9 months.
Case sizes are climbing which feeds operating leverage. The forward book average case size is over £140k, which is still lower than pre-covid £200k, but far better than the £81k in the trough following Covid.
More revenue, wider margins, all bode well for shareholder returns.
Manolete is not in the 2nd wave of Cartel cases to be heard in Sep 26. But it is negotiating out of court settlement. Liability has already been established. One of the defendants has already settled. I would be amazed if these were not all settled this year.
That's another big cash inflow to boost returns.
The earnings multiple is so depressed, when these catalysts occur, margin expansion is inevitable.
Bigger revenue, better margins and multiple expansion are multiplicative engines of shareholder returns.
Then there's the buy back. They sought authorisation to buy back 10% of shares at the AGM. They did this for a reason.
That's all four engines of shareholder returns firing. All are multiplicative.
I don't know what else to tell you. The risk reward skew is so assymetric at the moment - heads I win big, tails I don't lose - that it's a no brainer to me.
If you have doubts, move on.
There are plenty of other companies to invest in.
You need to have conviction, and I don't think you do with this stock.
That's fine.
I am not selling investment advice. I am not pitching the stock. I own it and try to share why. What you do with that information is your business.
I hope this helps.
ALSO - you claim that:
> The catalysts that drive this business are sums invested (which are growing) and returns on money invested (which are improving).
But neither seems true.
- Sums invested are barely growing at ~3%. Can't even offset inflation.
- ROI has been declining. Realised margin has been falling (perhaps skewed by accounting), Lifetime ROI across all cases has been falling (perhaps skewed by new investments and time lag of them). It's only the vintage ROI that shot up in 2023 ([63%, 100%, 95%, 226%]) but it's been a one-off metric so it's premature to say it's improving.
Can you clear up what you meant by these?
See my prior comment . I believe it provides answers. In short, don't look at short-term numbers. Covid skewed those. Look at the big picture and make the requisite adjustments.
Looks quite alright at 60-65p, for mainlanders AIM is supposed to be quite terrible and I only secured 300 shares so far, lol.
The share price of Manolete Partners, already severely undervalued, dropped further yesterday.
What's going on?
The dip was caused by a regulatory disclosure that ex-CEO Steve Cooklin had reduced his stake from ~9% to ~7%.
Cooklin was very suddenly replaced over the summer in a move that I know he had not anticipated.
Why do I say that?
It was a Thursday afternoon — he and I arranged to meet for a lunch meeting the following Tuesday. On Friday he dropped me a note, apologizing for the fact that he was forced to cancel our meeting. He said all would become clear. On the Monday news broke that he was being replaced with immediate effect.
Does that sound like it was planned or foreseen by Cooklin?
What happened?
We don't know. The company disclosed no details.
Perhaps Cooklin had a health diagnosis that forced the move (I hope not, but its possible). Or perhaps he was forced out by large shareholders.
Brightlight Capital, a US private equity firm had recently taken a 10% stake in the business. Maybe the events were connected.
Now back to Cooklin's share sale disclosure yesterday. Either hypothesis for his sudden stepping down as CEO would explain why he might look to reduce his holding and liquidate part of his position. There could be other reasons - tax liabilities to settle, or perhaps he is retiring and needs to transfer some of his wealth to an income producing asset.
The reason is less important.
Here's where it gets interesting...
A 12‑month daily average trading volume is reported at about 63,000 MANO shares per day. So the question arises, how did Cooklin find the liquidity to sell ~1 million shares in such a short time? Bear in mind that the share price has been trending lower in recent sessions, indicating more sellers than buyers in the market.
More particularly, who bought them? I wouldn't be surprised to see a take private attempt of this company by private equity. Maybe Brightlight Capital. They may be accumulating shares through the market at discounted prices up to the level at which they are required to make an offer... Doing so brings down the average price that they'll eventually pay for the business. Let's watch their next 13F disclosure to see if their holding is increasing.
In conclusion, I am still bullish on this investment and yesterday's share price drop, at a time when the market as a whole has been falling, is not in itself cause for concern.
I just wish the new CEO would have the common sense to launch a repurchase program. At this level it would be enormously accretive and arguably the best use of capital. At the earnings call earlier this week she explained that H1 had been soft because of some delays in claim settlements which meant that H2 would be very strong. What better time to repurchase heavily discounted equity? Authorization for buybacks was given at the September AGM, so they are a step closer - they just need to pull the trigger.
Perhaps lobbying the company is the solution. If you are a shareholder, drop the CEO a line and let her know your thoughts: mena@manolete-partners.com
I was looking at the aging of trade receivables and how it has changed over the past few years. At the end of FY2022 83% was not due; FY 2023 71% was not due; FY2024 74% was not due; FY2025 59% or 64% was not due. Why is it decreasing? Is it a concern? What do you make of the statement that “a small number of large debtors have delayed payment on settlement plans”?
As at the H1 FY25 release (30 Sep 25), in relation to receivables:
- 64% of debtors were not due yet. 88.5% of those were out of court settlements and the remainder were Court judgements. In both cases, payment terms are established but had not yet fallen due.
- 7% were a small number of large debtors, that were less than 3 months overdue, where the debtor had delayed payments but agreed on settlement plans.
- Of the remainder, 13% were between 3 and 12 months overdue, while 15.4% were more than 12 months overdue. It should be remembered that most claims are against delinquent directors. When judgement is achieved Manolete obtains a lien (charging order) on assets (perhaps real estate) to secure the payment. But if a house needs to be sold to satisfy the debt, these are illiquid assets that take time to monetize. This is par for the course in this business. Of course the debt carries interest, although arguably not enough to offset the opportunity cost of not reinvesting that capital in new claims at high rates of return.
Bad debts (those that are highly unlikely to ever be collected) account for 4% of revenue.
I am anticipating a trading update sometime in April (although the company has not committed to a date), which will provide more visibility of the state of play at the end of FY25. Mena Halton promised a strong second half to the year on the earnings call following pubication of the disappointing first half results. She explained it as timing issues with settlements and judgements, so that is also relevant to your question. Let's see what the company says.
I’ve been poking around and here are my latest thoughts on Manolete’s truck cartel cases. it seems that the Wave 2 CAT trial scheduled for September 2026 has been adjourned. I think this means OEMs now have less pressure to settle. Any trial with Manolete will probably be a couple years away. Any near term settlements will be highly discounted- maybe 50-60% of NAV. If Manolete settles the remaining claims soon they may only get £4 million (Mano’s share). That would still be helpful, but not what I had hoped. What do you think? I would love to be wrong. Of course, this is not their main business. Ultimately, Mano’s success depends on the success of their main business. But the turn around may not be as quick if they only get an additional £4 million from the OEMs.
Manolete Partners were not in Wave 2.
The cartel cases have been poorly managed.
The business model is to invest in insolvency litigation and to make a return on investment in a relatively short time frame with a high success ratio. This enables capital to compound quickly through rapid reinvestment.
The cartel cases have dragged on for a decade or more. Too much capital is tied up in those claims…. Essentially dead money until they are settled.
Management decided to sit on their claims while British Telecom and Royal Mail litigated on the same facts. That was Wave 1. The idea was to save legal costs. Once liability was established, a legal precedent was set for all future waves. With liability established, quantum of damages was all that needed to be agreed.
The problem is that Manolete failed to be included in Wave 2. This was probably what led to Steven Cooklin being replaced as CEO.
Now they are likely to be included in Wave 3, although it is in the interest of none of the parties for this to go to court. The defendants are liable. Why throw good money after bad by dragging it out and facing far larger legal costs? The defendants are, all else equal, liable for the legal costs of the claimants and interest on the damages (there are exceptions but I won't get too technical). So settlement is to be expected.
One cartel cases settled in 2025. Others are yet to settle.
In my opinion, the firm needs to draw a line under this and free up capital, even if that means taking a haircut.
A fundamental problem is that the company still describes itself as a financing business (see the footnote to the recent trading update). They are not. They used to be in litigation finance but now they acquire claims. They are an asset manager. This matters.
Why?
Lawyers typically seek to optimise recoveries for their clients. Litigation takes as long as it takes. But as an asset manager where capital is constantly reinvested, the time value of money needs to be considered. Opportunity cost needs to be factored in to decision making. Optimizing recoveries is not the objective, it's about optimizing portfolio returns. This is the bit Manolete has so badly wrong. It is being run by a lawyer with a legal mindset, not by someone looking through an asset management lens.
You know what they say, “To a hammer everything looks like a nail!”
The cartel capital needs to be released, these claims written down as a bad decision and the firm needs to get back to deploying capital in its core, very profitable, business model.
No idea why the trading update focused on free cash flow. It's the wrong metric for an asset management business. Net asset value per share ought to be the focus.
The shares are worth way more than the market suggests. Management needs to unlock that value. They have multiple levers to pull, but for some reason that I am unable to explain, they haven't pulled any yet.
I hope this helps.
Please see the comment I posted earlier on this thread in response to Alex.
To that I would add that gross cash receipts and case signings for FY26 are up year-on-year. From a cash perspective the Company has invested in new lawyers and in new cases, which has helped grow the forward book by £18m or 37% YoY.
As I said in that other response, this is an asset management firm and the correct metric to monitor is NAV per share, not free cash flow and arguably not income statement earnings either. Those are distorted by unhelpful accounting conventions (IFRS9, etc). They also book investment in cases not as CAPEX, but in operating cash flows (their auditor insisted on it apparently). This is important because as money flows in to the business from completed cases, it flows back out again in the form of investment in new cases. One largely cancels the other, so operating cash flow always looks weak, when in fact it is not.
I was discussing this with another investor earlier and he framed it with a back of the envelope calculation:
- Second year in a row they have recorded gross annual cash income at least £28m.
- MANO get their costs back (20% of gross) £5.6m to MANO
- That leaves net cash from those completed cases of £22.4m.
- MANO take 50% of that cash profit: £11.2m.
- So MANO retains £11.2m+£5.6m= £16.8m
- Take off annual overheads of £6.5m cash (16.8-6.5=£10.3m)
- This £10.3m may be a better indicatin of cash flow before reinvestment of capital
- The current market capitalisation is £21m, so if this back of the envelope math is anywhere near close to being correct, the company is capitalised at only 2x its cash generation. That makes it insanely cheap on a cash basis.
Once again, management have multiple levers to pull to unlock that value, but to date they aren't pulling any of them. This is a test of the competence of the senior management team.
I just sent her an email regarding buybacks
Excellent article and another example of financial peak intelligence! I love this kind of stupidly undervalued businesses due to their incomprehensible financial structure. A small critique though, I do not understand why you said that it could become 3x discounting it at 8%, when the rate on their debt is 9.4%. Even considering the tax effect that would make the cost of debt lower, the cost of equity would be significantly higher. So I would place the WACC higher than 8%.
I dislike WACC as a concept - it is taught at business schools, but it is academic theory that has no utility in practice.
I break down my thoughts on the matter here: https://rockandturner.substack.com/p/gulf-oil-pays-500-dividend-yield
- What is Manolete's cost of equity?
- It doesn't pay a dividend, so the cost is arguably simply a share of the upside as the enterprise value increases.
- But if it sold shares at £1.80 at its IPO and has used that money to grow, and is now able to buy those same shares back for £0.90, what is its cost of equity capital then?
Moving on from the theoretical cost of equity and its flaws, let's think about the unit economics of the business.
I calculate that it is making approximately 16.5% annually on invested capital. It has no shortage of reinvestment opportunities, so this should be the rate at which it compounds if all earnings are reinvested (remember, no dividends - which is a good thing in these circumstances). But if it augments reinvested earnings with debt, then its rate of reinvestment is greater than 100% of earnings, so its compounded growth should be greater than 16.5%.
If it can borrow at ~8% and generate ~16.5% on that money, its net interest margin is a whopping 8.5% (something banks could only dream of achieving - their net interest margin being the difference between deposit rates and lending rates). So, with such a huge net interest margin, it should optimize leverage.
But that brings us back to the allocation of capital - which should always be determined based on opportunity cost. If the shares trade at less than 50% of intrinsic value, then allocating capital to repurchasing that equity (and locking in a negative cost of equity capital) would yield a far more accretive result (>100%) than reinvesting in new cases yielding an annualized 16.5%. The company has headroom on its debt facility and while its former CEO was dogmatically focused on reducing debt at any cost, the better decision would be to reduce equity financing within the business while the share price is so depressed. At the AGM, a resolution was passed granting it authority to do so, but so far no repurchases have been made which is somewhat disappointing.
The question is, are management competent enough to make the right decisions. The company now has a new CEO - Mena Halton. We will need to wait and see which levers she decides to pull.
Thank you for your answer. I have read your article just now and answering to your question posed in your article: "if the two smartest investors of our time - Buffett and Munger- don’t trust these tools, should you?". I would say that you are looking at this from a purely theoretical perspective, not a practical one. I am not impressed that Buffet or Munger would not use WACC either, because they refuse to use DCF in the first place. My view on the cost of equity is much simpler: I view it as the cost on my capital, as an investor, not the cost for the business. The reason why this makes much more sense is simple: if a business buys back 50% of their shares, the market cap would be the previous market cap minus the cash that was spent. In other words, the share price would roughly double, minus any decrease due to less cash. So you can basically never fully repay equity. If we assume you could buyback all shares, at some point you would have 1 share that is worth the entire business. If I run a DCF model, I will use at least 15% as my cost of equity, because I am not investing in a stock if the returns are less than 15%. Why bother taking the risk and mental overhead of investing in a stock when you can buy the index? I need a higher reward to justify for it. In this sense, the math makes perfect sense: the cost of debt is fixed, so a DCF tells you how much you would get in return as an equity investor. It is true that you could say, but why use a DCF when the Warren Buffet does not use one? but that would be an argument of authority, not a logical one. I used not to use DCFs, until I read an opinion on the contrary that by using a DCF, you need to really think more deeply on every financial line item, so the assumptions you are making are actually more explicit than just using ratios or back of the envelope calculations. So that is what I do.
The market only functions because we all have different approaches to valuations. If everyone did it the same way, the share price would settle at fair value on a NPV basis and there would be no mis-pricing and no real investment opportunity.
At the AGM today, all resolutions were duly passed - that includes the right to repurchase upto 10% of the shares outstanding.
Manolete made a pre-AGM trading update announcement earlier today, which on the face of it appeared soft, but the important part is this: “The level of activity throughout the year for Manolete is not linear, and a number of higher value completions are expected over the coming months alongside a strong pipeline of potential case signings. The Board is confident in the outlook for the business for the full year but realised revenues are expected to be significantly weighted towards the second half of the financial year.”
In short, the first half of the year did not see as many large case completions (only one of the Cartel cases closed), but the others are due to close and the second half of the year is expected to be strong. The quote above hints that the other cartel cases may settle in the second half of the year. Collectively they are worth over 25% of the current market cap of the company.
The issue, as today's activity proves, is that the market tends to price short-term earnings quickly but often misses the gradual, multi-year improvements. The immediate reaction of the market was negative, but I am sure this is a temporary thing.
The reason that the share price has rallied strongly from mid-70s to 118 recently was because the market was front running the company in anticipation of a buy-back. This was actually bad news for long-term shareholders because repurchases become more costly. With this in mind, the pullback in the share price today is most welcome. Hopefully Manolete will now seize the opportunity to repurchase shares at a lower cost and so retire a larger percentage. This is all good news for long-term shareholders.
Hi James. Curious about your thoughts on the recent trading update. They obviously signaled “not so great 1H but expect a big 2H” at the AGM. But wondering if your thoughts on the outlook have changed and what you think about new mgmt. Frankly, now would be a pretty good time to buy back some shares. They have the approval and the share price is in a free fall. Thanks!
The new CEO has only been in post for 3 months, so it is too soon to judge her. She has also been operating without a proper CFO. Taverner resigned in February and the new CFO starts in December, so they've had a junior finance girl running the numbers, but she is no substitute for a seasoned CFO.
The old CFO (I was no fan of his), was a career accountant from Deloitte who learned his trade in the audit department. He was not a corporate finance expert, Manolete was his first role as a CFO, he refused to take any meaningful investment in the business and he had no capacity to think outside the box. To him everything was a text book academic challenge. He designed the disastrous approach to meeting IFRS9 fair value accounting rules which has caused the company no end of trouble (profit warnings and asset write downs - all of which were avoidable).
I met with the new CEO last month and she told me that the new CFO is a corporate finance guy. I sincerely hope that he is and that he is prepared to bring about some necessary changes, while injecting some semblance of commercial acumen in terms of capital allocation decisions.
You correctly point out that H1 numbers were soft, but that was due to timing issues in the settlement of claims which is outside the control of Manolete Partners. Those claims that didn't settle in H1 will settle in the second half of the year, in addition to the claims that would have settled in H2 anyway. So H2 should be much better. If any of the Cartel claims settle, it could be a fantastic H2. We will need to wait until March '26 to find out.
Since H1 was soft, the company did not generate very much free cash flow. This would limit its ability to repurchase shares. That having been said, it did pay down some of its debt, so there was some surplus capital available. Capital allocation has never been a strong point at this company - I hope that the new CFO will change that.
My thoughts for what they are worth. If you are borrowing at 8% and able to generate an annualized return on capital of close to 17% (my calculations), then you would want to optimize borrowing. It's a 'no brainer' as they like to say in the US. But the company instead chose to reduce debt?!?!
There are two forms of capital available to a business: debt and equity. The latter is the most expensive form and so debt is usually preferred if available. Why issue equity and dilute shareholders when debt is readily available and can be paid down according to a contractual repayment schedule to augment shareholder returns? If you agree with this, then you must agree that the opposite is also true. The repayment of equity capital should always come before the repayment of debt, unless of course the share price is at a premium to intrinsic value. All of this suggests that sound economic theory would dictate that Manolete should not have reduced its debt, but instead applied that money to the reduction in the share count (especially at its current crazy low valuation). Again, a 'no brainer'. But it didn't do this.
I hope and pray that the new CFO has a commercial brain. The company needs one of those desperately on the board. If he does, and things start to change, this stock could more than triple in the next 6 months. If not, it may continue going nowhere.
It's not about how great the racing car is, it's all about who will be driving it around the race track.
I hope this helps.
Thoughtful, thorough, and smart as usual. Thanks James!
The other thing to bear in mind is the operational leverage in the business. Following Covid the average case size dropped significantly from £>200k to ~£81k. A legal case takes a similar amount of effort, regardless of the amount being claimed, to smaller cases are less cost effective.
In recent years case sizes have been steadily growing again. This was mentioned on the earnings call earlier this week again. The focus of the business is to sign larger claims.
So if you assume that each case carries a similar cost, but the revenue it generates is increasing, you will understand that as case sizes trend back to pre-Covid levels (and perhaps beyond), margins will improve significantly and more of the top line revenue drops to the bottom line.
If H2 is as strong as management hint it will be, we should start to see this at the end of year earnings call early in 2026. Increasing top line, increasing margins and increasing profits usually lead to a higher earnings multiple. All of these things are multiplicative in terms of share price. If the company reduces the share count, that too is multiplicative. In short, Manolete could be about to start firing on all cylinders with multiple engines to generate outsized investor returns.
This is what I am hoping to see.
Interesting. Not sure what's going on, or why he stood down so suddenly. Perhaps he has health issues - if so, I hope it isn't anything too serious. But that would explain is sudden departure and liquidation of assets.
Thankyou for your clear analysis James. The shock news that none of the debt had been paid down initially fazed me in today's update, as this had been repeatedly and clearly promised. It gave the initial impression the company were using the pot ro 'scrape by' on emergency funds which is false of course.
My major grouse is still with this sclerotic Labour administration (Reeves, Tom Hayhoe and the Insolvency Service) and their seeming reluctance to fight fraud. You'd think the strident Jon Moulton would be more active in this regard as he's never been one 'to let the grass grow!' The issue was recently highlighted in the Financial Times which slated the Government's ‘Passivity’ in recovering Funds.
James, have you any idea of the total number of Cartel cases yet to close? I expect the share price to respond with a welcoming fillip as each and every one concludes in the next six to nine months. We brow-beaten shareholders are long overdue some 'good cheer!'.
In terms of numbers of Cartel cases, I do not have that, but could make some logical deductions. One of the Cartel cases settled for £3.2m in August this year. The remaining Cartel cases are valued at ~£10.5m, so assuming that they are all of a similar size (not necessarily a safe assumption), it would imply that there are three more to settle (probably +/- 1 tolerance on those assumptions). I hope that helps.
Don't get me started on Rachel Reeves and the economically illiterate Labour party.
Frankly, from my own past experiences in different fields, I would never bank on anything that depends upon politicians of any colour - red, blue, yellow or green. They always flip-flop and change policies. It's impossible to build a house on sand, and politics is the weakest of foundations for a businesss.
The other issue is that Manolete should be focused on operating leverage. The cost of pursuing litigation in terms of man hours is not a product of the sum being recovered. As such, the larger cases are far better from an economic perspective. The margins will be far higher. The BBL claims to recover government money were all small. Using the BBL claims to plug a gap while government special measures slowed down the rate of insolvencies following the pandemic was tactically sound as a decision, but it was never a strategic long-term objective of Manolete to pursue these claims. It should now put the BBL business behind it and focus on winning big lucrative claims.
Just my opinion.
Re. 'operating leverage' focusing only on larger cases: Would many HM Revenue and Customs cases qualify? The Challenge Recruitment Group I alluded to previously owing £90m in unpaid taxes for example. A 50/50 split on any recovered monies would swell Manolete's coffers exponentially.
The HMRC say that 'phoenixism’ (evading tax) is on the rise and are collaborating with the Insolvency Service to increase the number of prosecutions. Whether they deliver on that promise and Manolete becomes a major beneficiary only time will tell I guess.
Keep up your excellent work James you are always 'on the ball', and I hope that Mena Halton accedes to your request for an interview sometime soon.
This is very interesting, thanks, but I have a question. You write, “When an insolvent company has been wronged - often by dishonest corporate management - it lacks both the funds and the operational leadership to pursue litigation.” So if I understand correctly, Manolete is in some cases buying an existing claim brought by a bankrupt company against its own management. Who in general has filed such a claim? Clearly not management!
The claims are usually brought by creditors.
Imagine a situation where a company has debts and, in the knowledge that the business is struggling, a delinquent CEO extracts corporate capital - perhaps via another corporate entity he or his family own - and then declares bankruptcy as the liabilities of the business exceed its assets.
In such circumstances, the creditors will have an action against the delinquent CEO but may either not have the financial resource or the inclination to pursue litigation.
So along come Manolete Partners, buy the claim, perhaps for 30 pence on the pound, and the creditor is happy to have recovered at least some of his capital.
Manolete now owns the claim and pursues the delinquent director for the full sum owed.
Creditors can be big or small and may include the UK tax authority (HMRC).
The administrator/insolvency practitioner will have identified wrongdoing and it is they who usually make the introduction to Manolete Partners.
The beauty of the business model is that Manolete will buy the claim, but leave the administrator, insolvency practitioner and third party lawyers to keep working on the case. For these service providers, having Manolete fund the claim is a huge benefit. It ensures they will be paid and so effectively underwrites their cash flows. So it is a symbiotic relationship that encourages these people to bring meritorious claims to the attention of Manolete.
For Manolete, it means little to no cost in attracting new business - no advertising costs - no sales teams - instead, the business finds them via a pre-existing network and their reputation in this industry.
It really is a very elegant model.
They cherry pick only the best quality claims, so their success rate is over 93%. Their failure rate is less than 1% (claims lost in the Court room), with the difference being claims that were abandoned for one reason or another based on risk assessments (maybe new facts come to light, or maybe the delinquent director is found to have no assets to pursue as he himself had personal debts and fell into bankruptcy).
Either way, a 93% success rate on investments that usually give a cash return of perhaps 2x over a 2 year period is very attractive. The risk based returns are phenomenal. It's a "heads I win big, tails I don't lose very much" situation. Almost as good as running a casino. More particularly, with no shortage of new claims to pursue, reinvestment opportunities are abundant, so this is a compounding machine. Very few business models are this good.
I hope this helps.
Thanks--so, if I understand correctly, in such a creditor action against management, the bankrupt company is not a party to the lawsuit. I had thought that the only kind of claim that could be sold by the plaintiff is when the plaintiff is a bankrupt company, but I gather its creditors can also sell their claims, is that right?
Technically, Manolete stands in the shoes of the insolvent company which gives it standing to pursue delinquent directors for the benefit of creditors. The Insolvency Act 1986 allows legal claims of insolvent companies to be sold to third parties in this way. This was deemed appropriate as it would benefit all of the creditors if moneys could be recovered to meet at least some of the outstanding payment obligations. Administrators have an obligation to recover as much as possible for creditors and if selling the claim to Manolete at a discounted price is the least worst option, it satisfies it's legal obligation by taking that option. For the creditors, recovering something is better than nothing.
Manolete Partners (MANO.L) - An Interesting Development
For years, shareholders have urged the company to use excess capital to repurchase its deeply discounted shares, but management has consistently resisted. That stance may now be changing. With a new CEO in place, the upcoming AGM on 16 September will include a resolution to authorise the repurchase of up to 4.38 million shares.
Given the company has 43.81 million shares outstanding, this represents a potential 10% buyback. It is a welcome and highly sensible move, arguably the most accretive use of capital available today. After all, buying £1 of value for less than 50 pence should not be a difficult decision. If some shareholders wish to exit at depressed prices, the company can facilitate that and, in doing so, transfer meaningful value to those who remain.
This development could well serve as the long-awaited catalyst to unlock the stock’s hidden value.
Hi James. Do you think this 10 percent buyback will mark the first of many aimed at kicking Brightlight Capital's 70% goalpost further into the long grass? Will it turn into a war of attrition with each party in a mad dash to pick off all the cheap low-hanging fruit they can find?
I suspect Mena Halton is more 'savvy' than Cooklin and covertly an avid reader of your posts. And If she 'boxes clever' in her choice for an entrepreneurial CFO too, then this could indeed be the red-letter event to "unlock the stock’s hidden value."
No idea what prompted the change in strategy, but it is very welcome. The first of the Cartel cases settled bringing in £3.2m, which would cover a 10% buyback. There are several more Cartel cases due to settle. Maybe settlement is imminent. If more cash is coming in than the company is able to allocate to investing in new cases, repurchases are the logical choice while the shares remain so heavily discounted.
There is still a chance that a takeover bid is made.
I think that the coming 12 months are likely to see a complete reversal of fortunes for Manolete Partners. The shares are already up about 20% since Cooklin resigned, but they have so much further to go. I wouldn't be surprised to see 3x or more from here over time.
Although the company remains on a positive trajectory, its share price has come under pressure recently. The main reason is that Michael Faulkner, one of its longest-standing and largest shareholders, with a stake of around 12%, who had been liquidating his position, reportedly due to health reasons.
Because the stock trades on the Alternative Investment Market with very thin liquidity, the presence of a large seller like Faulkner has significantly disrupted the supply-demand balance, putting downward pressure on the price.
The good news is that the overhang appears to have cleared. Yesterday, Brightlight Capital stepped in and acquired Faulkner’s entire holding, giving him a clean exit and introducing a new major shareholder to Manolete Partners. With the selling pressure now lifted, the share price has already started to rebound.
The company settled one of its long-running Cartel claims recently and others are expected to settle soon. This will introduce a large cash injection into the company which it will use to accelerate its growth.
For Brightlight Capital, it seems as though the timing was perfect. This is likely to become a very lucrative trade for them. Brightlight runs a very diverse but concentrated portfolio of only 9 equity investments, unconstrained by geographic or industry limitations. This suggests a sniper rifle rather than a scatter gun approach, which is telling when they select a company like Manolete Partners for their portfolio.
Hello James,
I always keep my eyes peeled for your latest posts and greatly appreciate your detailed analyses. Long may they continue.
It appears that Michael Jonathan Faulkner is offloading all his shares (for reasons I hope you'll conjecture!) and the sale of another tranche of more than half a million was announced today.
With another putative 4.5 million shares to offload, I'm concerned this will prove a real drag on the share price for the foreseeable future.
Wouldn't it be better if Cooklin used his now bulging £3.2 million bank balance to purchase all of Faulkener's remaining 4,270,000 shares at an advantageous price in some mutually agreeable deal?
Imagine that.. acquiring 10% of your own stock in one fell swoop! That's a red letter day if ever I saw one!
Would you agree with this plan of action, or am I overlooking something here? It just appears to me this is a once- in-a-lifetime opportunity which needs grabbing by the throat!
Paul Rumbol (MANO investor)
People sell for a variety of reasons. I don't know Faulkner so I'm unable to ask him. But it would be a great opportunity for the company to repurchase a large block of shares with the settlement monies from the cartel case due early August. Alas, I don't think repurchases are on their 'things to do' list.
Hi James,
here's Steve Cooklin speaking at the MelloMonday event earlier this week. I typed a few questions at the end of his address pertaining to Faulkner and buybacks which I'm sure will elicit a few pithy comments from yourself.
Join the conversation from 32' 41".
https://www.youtube.com/watch?v=XPpbnHvHKNc
Thank you for sharing. I am meeting Cooklin on 12 August. Plenty to discuss.
I hope he takes your advice this time around. But you know already he's as stubborn as a dog or mule.. useful qualities i guess in his field of expertise!
Given the excellent returns on capital that he is able to generate, reinvesting capital would help grow the net asset value of the business. Repurchasing shares below intrinsic value is accretive to shareholder returns but it doesn't help grow the business - just the value of each share. So, all else being equal, reinvestment should always be the priority.
But this is a very simplistic view and all else is not equal.
If you take the view that Manolete Partners has an intrinsic value per share of £3.20, while those same shares trade at 80p, then the return on capital invested in repurchases is 400% - far better than the real rate of return on investment in litigation. Not only that, but there is no risk of a claim failing with this approach and there are no associated labour or third-party costs. So the value creation drops straight to the bottom line.
Now, let us assume that those shares are not retired, but instead held in treasury. As the market price comes back into equilibrium (which it would more quickly because the market would construe buy-backs as a positive signal and it would also reduce the size of the public float, thereby contracting the supply of shares available for trading), the company could then resell those shares back into the market realizing the uplift. That money could then be reinvested in new claims, which would turbo charge growth.
Decisions on capital allocation need to be made based on opportunity cost.
Wow such seismic changes in so brief a period of time has left me dizzy. I do wonder whether Brightlight Capital were implicated in instigating these changes in some way. All conjecture of course!
Share price is holding up thus far.
I'm guessing tomorrow's meeting with Cooklin is cancelled?
I eagerly look forward to your interview with Mena Halton if she will hastily agree to one.
Keep up your exemplary work James!
Thanks for the insightful analysis James. Very helpful!!
Important Update on Manolete Partners (MANO)
Manolete has announced the successful settlement of one of its long-running truck cartel claims, securing £3.2 million in cash. This fully recoups its investment and includes a strong profit share, with payment due by 1 August 2025.
The economics are impressive: Manolete invested just £483k in this particular claim, implying a money multiple of 6.6x and a 560% cash return. With the broader trial for other truck cartel claims delayed until September 2026, the board saw this early resolution as a smart trade-off, favouring immediate cash that could be reinvested in new claims.
Manolete, often mischaracterized as a litigation finance firm, is more accurately described as a specialist asset manager. It acquires legal claims, manages them through to resolution and reinvests the proceeds at exceptional rates of return. In that light, early settlements like this are beneficial, as they free up capital for reinvestment and will enhance compounded returns.
But there's a downside. Because the settlement came in below the claim’s previously marked valuation, it triggers a non-cash fair value write-down of £836k, in line with IFRS-9 rules. This is a hangover from the Mark Taverner era, when litigation assets were marked to estimated market value rather than cost. Investors have long argued this approach is misguided, especially given the illiquid nature of these assets (there is no resale market and so their resale value is arguably zero) and the unpredictable nature of litigation claims where timing of settlement materially impacts the size of the settlement.
Based on this settlement, the company expects to take a further £1.1 million non-cash write-down on its remaining truck cartel claims in its interim results for the six months ending 30 September 2025. Combined with the current £836k, that brings the total write-down to £1.9 million. As of 31 March 2025, Manolete valued all its truck cartel claims at £15.4 million. With £3.2 million now monetized and £1.9 million written down, the net asset value of the remaining claims is expected to be about £10.3 million.
It should be noted that this is just an accounting issue. The settlement, as explained above, is good news and a great outcome. Investors that understand this business will appreciate this nuance. Unfortunately, most of the market do not, and will take the 'write-downs' as bad news invariably negatively impacting the share price.
This is the second time that Manolete's misguided approach to meeting IFRS-9 has backfired - the last time caused a profit warning in September 2022 which rocked investor confidence. With Taverner no longer CFO, this should be the moment for change.
This truck cartel investment was a rare divergence from Manolete’s core strategy. While pleased with the outcome and still optimistic on remaining claims, the company reaffirmed that it's unlikely to pursue similar Competition Law claims again in future. This is also good news as its core business yields impressive rates of return over far shorter time frames - a perfect recipe for high rates of compounded growth.
In short, the investment thesis remains firmly intact, and today’s news is a clear positive. If the share price reacts negatively, it may well present an excellent buying opportunity. The only disappointment is the company’s decision to use the £3.2 million proceeds to pay down debt under its Revolving Credit Facility with HSBC. Given the significant discount at which Manolete’s shares currently trade relative to intrinsic value, this represents a major missed opportunity to repurchase up to 10% of its own stock - a move that could have delivered substantial long-term value to shareholders and simultaneously sent a positive message to the market undoing the damage caused by the asset-write down and Manolete's misguided approach to meeting IFRS-9. C'est la vie!
Hello James,
Thank you for your very detailed analysis which is a great introduction the Manolete investment thesis. After “digestion” of this highly atypical / complex case, I’d have some questions / observations if I may. I try to play the devil advocate in order to rule out any potential structural weakness / risk which could make Manolete a value trap.
1. I understand the growth drivers will mainly reside in the higher value of the cases and I understand these case take longer to happen after the initial rise on litigation. Still, I am wondering if this “higher value case” are more difficult to sign.
In the paragraph on the champerty concept, you point “Champerty was ultimately recognized as providing a “social good,” allowing third parties to finance legal claims and so ensuring that access to justice wasn’t restricted by financial constraints”
This quote should imply that larger corporations may be less cash constrained .. then they do not need Manolete service ?!
I may be totally out of the book here as in a bankruptcy, the company is by definition always cash constraint whatever their size .. but from I have understood, Manolete is more focused on the “technical cases” where there is fraud .. and I wonder if these cases are still bankruptcy cases or not ?!
My fear would be that Manole may be restricted on lower value cases (which translate into lower profitability) because higher value companies just don’t need Manolete.
2. Considering Manolete buys claims, the higher the case, the more Manolete has to invest to buy in ? ie is there any capital constraint which may prevent Manolete to grow into higher case ? (I understand they don’t want to pay out dividend .. in order to grow equity .. which may validate my observation ?
3. As Manolete has to buy in the case and they have a finite equity, they end up subscribing RCF to generate new liquidity to fund new case. Considering the higher interest cost environment, this is a drag on profitability.
Does Manolete benefit from any “cost of money compensation" when they successfully close case ? This would balance their higher interest debt burden.
4. The constant increase in referrals is very positive (20%-25 CAGR). It show the prestige of the company and reduce the marketing needs. Still, this doesn’t transfer into a growing number of case at the close of march 31, 2025 : 282 cases vs 276 in 2024. How to explain this flattish number of cases despite higher referrals ? (I don’t have the “overall value of the ongoing case” which may be indeed growing)
5. I understand that Manolete is quite safe of the legal side as they have proved almost 100% success rate on cases. STILL, this doesn’t always mean with “good profit” as I have noticed an increase amount of “bad debt provisions in the last years :
• 2019 : 49k GBP
• 2020 : 535k GBP
• 2021 : 1366k GBP
• 2022 : 321 kGBP
• 2023 : 1534k GBP
• 2024 : 1362k GBP
• 2025 : 1343k GBP
These provisions represent quite a heavy charge compared to the 20-30M GBP revenues.. I wonder how to explain this sudden bad provision increase .. as there was almost none pre 2018 ?
If there any way Manolete can contain this risk ?
6. With the CFO departure, is there a possibility that the company will change their IFRS 9 accounting ?
7. Apart from the accountancy policy which seems a low hanging fruit, what others initiatives can implement the future CFO to boost ROE ? I don’t know if any sharebuyback makes sense even at a current value of 1x P/B .. as the capital is needed to fund the future business.
8. When did the company buy the truck cartel claim and how much did they invest to buy this claim ?
9. I think your chart on the ROI metric is an interesting idea to show the ROI over time. However, I think you should have used a trailing metric on the “% uplift on capital invested” (green bars) to show the IRR instead of the overall value generation since inception (ie 48% over 9 years since 2017 doesn’t seem “that profitable”). I suggest to use a 24 trailing month IRR metric which track the “normal” cycle of the cases (from the initial funding to the final down payment).
Thank you for any helpfull feedback :)
Olivier, thank you for your questions.
I’ll try to address each in turn with a brief comment:
1. Litigating a case involves lawyers exchanging communications and preparing for a Court hearing in the event that settlement cannot be agreed between the parties. The work load is broadly the same for a claim valued at £25,000 as it is for a claim valued at £1m. So there is operating leverage in the business. Margins are bigger on the larger claims. The average claim size pre-Covid was ~£200k, but because of special measures introduced by the government to protect businesses from insolvency, it fell to ~£80k. That impacted margins. However, it is now moving back up, currently ~£120k and anticipated to move above £200k in due course. The second part of your question appears to be a misunderstanding on your part. Consider the Cartel cases – valued at north of £15m – these were businesses that were driven to bankruptcy because the big truck manufacturers illegally fixed prices, squeezing the margins of their customers and introducing financial strain that proved fatal. Manolete will sue the big truck companies on behalf of these insolvent claimants. If it wasn’t for Manolete, these claimants may not have had the financial fire power or determination to sue huge multinational truck manufacturers (kind of a David and Goliath situation).
2. As stated above, formerly the average size of a claim was £200k. The company has a net asset value of ~£45m and a revolving credit facility of ~£20m, so investing in larger cases shouldn’t be constrained by lack of financial resource.
3. Manolete earn about 17% annualized on investment. If they are borrowing at single digit rates, it looks like good business to me.
4. Case numbers are a red-herring. Ignore them. I have no idea why the company quotes them as a metric. I would rather have one case worth $1m than 10 cases each worth $100k. It’s the average value per case that matters most.
5. Winning a case is one thing, securing settlement from the other party is something else. Sometimes the other party will pay without any trouble, other times the judgement needs to be enforced. There is always a risk that they don’t recover all damages that they are awarded so provision needs to be made, but just because there is a provision, doesn’t mean that it is utilized.
6. I hope that the new CFO will be more commercially minded, rather than being just a dull accountant.
7. Settlement of the Cartel cases and reinvestment of that money will be a key catalyst. Buying back shares is something they should be doing but have refused to do. Focusing on larger sized cases to bring up their average case size is important.
8. The Cartel claims have been going on for almost a decade. It isn’t typical Manolete business. Most of their cases settle within 2 years from start to finish. Although these cases will land the company a huge windfall, they have acted as a drag on performance – which is why the company quotes its returns excluding the Cartel cases. Returns on investment are annualized and so the more time it takes, the lower the annualized return will be. These claims need to be settled ASAP and the money reinvested at higher rates of return. Liability is already established, so it is a question of ‘when’, not ‘if’.
9. Interesting suggestion. Thank you.
I hope this helps.
Hello James, thanks a lot for your high value feedback!
I agree Manolete is poised to have a better future with settlement of the truck cartel claim, astute initiatives from the future CFO, general tailwind for their litigation services due to falling economy .. but I think the core of the thesis relies on the higher value case which should soon emerge after the long administrative process for larger corporation.
10. I wonder if there is any extra “hidden leverage” on these higher value cases ?
I understand Manolete will be able to invest more funds in the claim while having the same costs for enquiry meaning higher IRR when settled. But can Manolete invoice any other fee to their litigator customer if the case is settled ?
Here is an example to explain my question :
Claim 500k GBP
Manolete buys 200k GBP, insolvency practitioner keeps 300k GBP
If settlement is positive, Manolete will win on their 200k claim stake and the customer will win on his 300k stake.
Can Manolete invoice any “extra success fees” to their IP customer which has recoup 300k GBP (say maybe 10% -20% of that amount?) or is Manolete revenue strictly limited at the pro-rata of the claim they bought (here 200k) ?
Thank you !
I think you may be misunderstanding the process.
Manolete works on a discounting basis. If a claim is worth £500k (your numbers) and the person owning the claim has insufficient financial resource or will power to litigate, then that claim may never be brought. So Manolete acquire the claim. They may say to the owner that if the claim is not brought within the statutory time limit, then all potential value will be lost - he will receive nothing. So Manolete may offer £200k for a high quality claim and perhaps they'll also offer a percentage of anything achieved over that sum as consideration to buy the claim. Let's say 50% for the sake of argument. Now Manolete own the claim and all rights that flow from it. They are in the drivers seat and can make all decisions relating to the litigation. So let's say that they succeed and are awarded £500k, plus legal costs. So the prior owner of the claim, who had already received £200k upfront, gets another £150k. The residual £150k is for Manolete. But don't forget that their capital investment upfront was only £200k, so get £350k back for having investing £200k, so they recover their initial investment, plus a 75% return.
This is why I say it is asset management, not litigation finance. They are buying an asset and benefit from the uplift in its value. It is really no different to a private equity firm taking a stake in a start-up and then benefiting from a subsequent IPO. The different being that in in the PE space, they hope for 1 in 20 start-ups to succeed, and the gain is huge which compensates for the 19 that didn't make it. With Manolete, their success rate isn't 5% but over 95%.
Hi James, amazing writeup! Thank you for the effort and painting a realistic picture of the business. I wish you'd step in as interim CFO and implement the proposed accounting improvements. Now that Taverner is gone do you see any likelihood your idea getting adopted by management? Also having met with the CEO I'm sure you've pitched him this better accounting method, was Cooklin open to it?
Thank you for your kind words
I think that everything turns on who they appoint as the new CFO
It shouldn't be another text-book accountant from a big accountancy firm
It needs to be someone who thinks outside the box, understands the nuances of corporate finance, invests in the business personally and does what's best for the company
It would be a disaster to appoint another Taverner who is ticks none of these boxes
Cooklin is a nice guy, but he too is very conventional in his approach. Will he change things? I don't know. I have lobbied on the merits of repurchases, but he doesn't seem to buy the argument and simply offers excuses about restrictions on capital imposed by their bank, HSBC, which is a shame. If the bank is holding the business back, the answer is simple. Change bank. But banks don't oppose companies paying dividends, so why would they stand in the way of timely stock repurchases? It doesn't make sense to me.
The settlement of the Cartel cases is key. Management need to start thinking like asset managers - the optimal settlement will be determined by a combination of timing and quantum. At the moment, the value of these cases is sitting as dead money not working for the business. They need to release it and redeploy it at a higher ROI.
Key skill sets are certainly missing at management level. Maybe the new CFO will bring those. If not, they need to add to the team to fill that void.
The company is hugely undervalued - the question is simply when will the re-rating occur. Once again, it all turns on settling the Cartel cases and redeploying capital in more vanilla cases.
I hope this helps
May be worth reaching out to Jon Moulton, who’s the majority owner, he could knock some sense into management to take these obvious wins. Happy to help petition on this anyway.
If you know a way to reach Moulton, please share it with me by DM. I have tried to reach him multiple times but without success.
MANOLETE PARTNERS STEAMS AHEAD
26 June 2025 - Audited results for the year ended 31 March 2025
Steven Cooklin, Chief Executive Officer, commented:
"We are delighted to report our highest ever revenues of £30.5m for FY25 and a strong increase in profitability, well ahead of market forecasts. Cash generation has also been particularly impressive with a 45% increase in gross cash receipts for the year. In FY25 we also recorded lifetime highs in the number of new case referrals from Manolete's nationwide proprietary referral network. FY26 has got off to a strong start with new case signings already 27% higher than the whole of Q1 FY25 and further concrete evidence of larger average case sizes feeding into our portfolio of more recent case signings. The continued strong tailwinds of challenging market conditions faced by many UK corporates provide the Board with optimism for further good progress in the new financial year."
For full announcement, see: https://d2ysp6t8sg26jc.cloudfront.net/2025-06-26/4499O/d6145ff701bb945cbeb3467e9894b703d15f8152.html