Strong Pipeline Of US Class Actions Poised To Drive Future Success

Key Takeaways

• The company's strategic focus on personal injury and class actions may boost revenue and margins through effective resource allocation.
  
• Transitioning to a portfolio-based funding approach for class actions could enhance future earnings and cash flow significantly.
  
• Shine Justice faces challenges in revenue volatility, funding limitations, and competition, potentially impacting earnings, efficiency, and market position in the class action segment.

Catalysts

Through its subsidiaries, provides damages-based plaintiff litigation legal services in Australia and New Zealand.

• The simplification of the business to focus on personal injury and Class Actions allows for resource reallocation to more profitable areas, potentially boosting future revenue and margins.
  
• A strong incoming pipeline of international class actions, notably from the U.S., is expected to generate significant future revenue and earnings.
  
• A new funding solution for class actions, transitioning from silo-funded to a portfolio-based approach, is expected to significantly enhance future earnings and cash flow.
  
• The implementation of a new marketing system has led to a 17% increase in inquiries, likely to translate into higher future revenue for the personal injury business.
  
• Successful initiatives in debt management and financing could stabilize financial costs, enhancing net margins and cash flow in the future.

Shine Justice Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Shine Justice's revenue will grow by 6.7% annually over the next 3 years.
• Analysts assume that profit margins will increase from 2.1% today to 10.6% in 3 years time.
• Analysts expect earnings to reach A$25.8 million (and earnings per share of A$0.09) by about March 2028, up from A$4.2 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 6.2x on those 2028 earnings, down from 25.6x today. This future PE is lower than the current PE for the AU Consumer Services industry at 15.2x.
• Analysts expect the number of shares outstanding to decline by 3.0% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.16%, as per the Simply Wall St company report.

Shine Justice Future Earnings Per Share Growth

Risks

• Shine Justice's revenue may be negatively impacted by a $4 million noncash loss related to the sale of a subsidiary, which suggests potential volatility in future earnings due to asset sales and their associated non-operational impacts.
  
• Class Action revenue recognition challenges mean significant work is done before cases are officially funded or filed, which can defer expected earnings and cash flows if filings are delayed, impacting revenue and cash flow timing.
  
• The need to secure new funding solutions for class actions suggests current funding methods might be suboptimal, creating a potential bottleneck in effectively executing and monetizing the class action pipeline, impacting future earnings.
  
• The reduction in fee earners with an emphasis on productivity improvements might not sufficiently offset the cost pressures and could limit the company's capacity to handle increased case volumes, potentially affecting revenue and operational efficiency.
  
• Shine Justice's earnings and margins might be at risk due to competition in the class action market and regulatory scrutiny, especially in securities cases, which could impact their ability to capture market share and maintain profitability.

Valuation

• The analysts have a consensus price target of A$0.805 for Shine Justice based on their expectations of its future earnings growth, profit margins and other risk factors.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be A$243.0 million, earnings will come to A$25.8 million, and it would be trading on a PE ratio of 6.2x, assuming you use a discount rate of 8.2%.
  
• Given the current share price of A$0.62, the analyst price target of A$0.8 is 23.0% higher.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.