Analysts have rapidly lifted their earnings forecasts for a global litigation financier on expectations that the coronavirus pandemic could spark more legal disputes.
Forward consensus earnings estimates for Sydney-listed Omni Bridgeway Ltd. have more than doubled since the start of the year and have seen the most positive percentage change on the S&P/ASX 200 Index, according to data compiled by Bloomberg. The company is embarking on a worldwide hiring spree after funding applications increased three-fold amid the pandemic, said Chief Executive Officer
Litigation finance is “very attractive in circumstances where there’s heightened risk,” Saker said in a video interview from Perth. “This type of demand will be around for the next couple years and may persist even longer.”
Saker said he’s seeing requests from corporations who want to take dispute expenses off their income statements and de-risk balance sheets. The company has also received more funding inquiries from law firms needing help with cash-flow management amid an uptick in litigation opportunities. Litigation financiers typically fund lawsuits and take a cut of any proceeds or recovery from the cases.
To meet the increased demand, Omni Bridgeway is bringing on more staff in the U.S., Canada and across Asia, Saker said. The company, which used to be known as IMF Bentham but rebranded as Omni Bridgeway after a merger with a Dutch financier, currently operates in 10 countries. Shares rose as much as 2.2% in early Sydney trading on Thursday.
The litigation finance sector could see sustained growth if firms continue offering attractive investment opportunities to an array of funders and keep providing companies and law firms a path to ease the cost of pursuing meritorious claims. Burford Capital and IMF Bentham, the two largest listed litigation finance firms, shouldn’t be disrupted by Covid-19 and may benefit over the mid-term on a rise in disputes and liquidity pressures that prompt clients to turn to third-party legal funding.
Still, virus lockdowns have slowed some parts of its business. Jury trials in the U.S. have effectively stopped during the health crisis, Saker said, while arbitration proceedings involving multiple jurisdictions have been difficult to carry out.
Litigation related to insolvencies has also been muted amid “safe harbor” protections. Saker expects to see more funding requests in that space once protections are pulled back.
The earnings upgrades also come as the industry faces increased scrutiny in Australia. The government earlier this year announced an inquiry into the regulation of class action lawsuits and litigation funding. Saker said regulations would help legitimize the industry and promote confidence in its services.
“Litigation finance is perceived to be bespoke, a bit quirky and unusual,” he said. “It’s important to the credibility of the industry to have some form of regulation.”
(Updates with share performance in fifth paragraph)
To contact the reporter on this story:
To contact the editors responsible for this story:
Naoto Hosoda, Margo Towie
© 2020 Bloomberg L.P. All rights reserved. Used with permission.