Is it business as usual for IMF Bentham?

Is it business as usual for IMF Bentham?

In a class action funded by IMF Bentham (ASX: IMF), the Full Federal Court of Australia has ruled in favour of ANZ, arguing that late payments on credit card fees are not exorbitant or unconscionable. While IMF Bentham has announced its intentions to pursue the matter to the High Court, the implications of a high-profile loss would certainly be front of mind for investors in the company.

The second half of the 2015 financial year has certainly been disappointing for a company with such a strong case record. Along with the unfavourable result in the Bank Fees case, IMF Bentham also lost another case on appeal and one case in the USA. The company is likely to give back the $23 million in profits that it booked in the first half of 2015.

Investors should not let the high-profile of the Bank Fees result influence their long-term assessment of the company. The key question that we must answer is – Are the three unfavourable rulings the result of a change to the company’s business model, or are they a part of the company’s normal operations?

We consider that it is business as usual for IMF Bentham. The Bank Fees case has been a very considered investment over many years, the USA case was a minor setback to what has been a very promising entry into a new market, while the National Potato case was initially fought and won in 2012.

It’s important to keep in mind that IMF Bentham is in a very strong cash position. At the end of December 2014, the company had $134 million in Cash, $48 million in Debt, and $65 million in Current Trade Receivables which are not subject to appeal.

IMF Bentham also had $80 million of Intangible Assets, which comprises the company’s investment in current cases. This is a sunk cost, so provided that IMF Bentham maintains its historical returns, the market is currently valuing IMF Bentham around its liquidation value.

Humans are typically loss-averse by nature, and are prone to overestimating unfavourable results, particularly ones that are in the public eye. It is during these times that the short-term prospects are extrapolated in the long-term. For value investors, maintaining a rational process can prove to be valuable.

Ben MacNevin is an Analyst with Montgomery Investment Management. To invest with Montgomery, find out more.