K3 Capital (LON:K3C) often bewilders and bamboozles investors it seems. Permanently a level above straightforward when it comes to easy understanding. For this reason I think some PIs see the mgt as unreliable or opaque at times.

Pre acquisitions of Quantuma and RandD in summer 2020 the underlying variation in income from corporate finance success fees magnified by an element of economic volatility in the pay to play retainer fees that clients paid up front meant revenues and profits were prone to surprise both ways.

Pre covid, mgt had been seeking to wean investors off of the crack cocaine of large corporate finance deal success fees. 2018 was a sweet sweet high in that regard but was followed by the 2019 come down and K3C addicts crashed...I bought first then and have bought at other points at relatively low prices. IMO people weren’t looking through to the beautiful pristine engine powering the K3C love bus.

2020 was setting up to be a return to decent form in terms of the big corporate success fees...but was even sweeter under the hood where the client and buyer acquisition engines were really purring. K3C were asking investors to focus on this element and downplaying the rich but volatile success fees element. That 2020 turned out pretty decent despite shutting up shop for 2+ months of year end and foregoing recognition of retainer fees for last 2 months of year (I think they only switched on again in second month of this year so a three month hiatus where pre-paid revenue for working on a case was not recognised, although note the cash is paid upfront so it sat on the balance sheet somewhat flattering cash relative to earnings).

2020 was partly bailed out overall by serendipity of good success fees making it look better than 2019 despite losing 1/6th of that year’s base retainer fee income. And that success fee was nearly all the result of success before covid hiatus (I think there was some during the 3 month hiatus). Overall, 2020 was looking to be a cracker but was covid deflated to merely pretty decent.

The underlying engine was going great guns though and its best seen in the KPIs that K3C given in presentations. I’ve lifted 4 pages out of the fy20 presentation and put at the bottom of this. IMO this is the thing to focus on…

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