Omni Bridgeway (OBL) | Wivenhoe Dam timetable still leaking but end in sight
Update: OBL has released its Investment Portfolio Report (IPR) at end March 2020 and provided an update as to the status of the high-value Wivenhoe Dam. We summarise the update and review our forecasts and investment view in this note.
Investment Portfolio Report: The IPR summarises the expected portfolio value (EPV) which estimates the OBL’s projection of gross revenue from a matter before costs and revenue share in addition to YTD revenue. Main points: 1) Group EPV of matters (ex-EU and Middle East fund numbers 6 & 7) approved/conditionally approved matters increased to A$12.5bn (1H20: A$11.5bn): 2) FY20 YTD to end March 2020 recognised revenue of A$160m; 3) further potential FY20 revenue of A$256m from successful judgements and agreed/conditional settlements, although we presume that A$120-$150m of this amount relates to a successful conclusion of the Wivenhoe Dam matter in the current fiscal year; 4) of note, investment funds number 4 (started April 2019) and number 5 (started September 2019) have already built a combined EPV of A$3.0bn across 10 matters; and 5) OBL cited a “significant” increase in litigation funding applications since the advent of COVID-19 – we expect this trend will come from COVID-19-related litigation and the withdrawal of non-traditional funders from the industry.
Wivenhoe Dam matter: 1) The Supreme Court of NSW expects to deliver its decision on the apportionment of liability between the Queensland Government, Seqwater and Sunwater by 30 June 2020; 2) all parties have been ordered to conduct mediation by 30 September 2020; 3) the Court to resolve outstanding issues in October 2020; and 4) hearing of appeals (if any) in November 2020 or early 2021.
Changes to forecasts: Material downgrade to FY20 NPAT forecast with commensurate upgrade to FY21, after shifting the conclusion of the Wivenhoe and Westgem matters to FY21.
Investment view: Whilst the Wivenhoe Dam final resolution has likely slipped from FY20 to FY21, the sequence of events outlined suggests that the matter will be finalised in FY21, following a successful judgement in 2019. OBL is growing at pace, which will now be potentially amplified as the result of a contraction of competitor capital due to COVID-19. FY21 now shapes as a banner year in terms of the potential finalisation of Wivenhoe and/or Westgem and the scheduled settlement of A$2.4bn in EPV in investment fund no 1, which will remove the earnings drag from the priority return of third-party capital in that fund.