Shine Justice (ASX:SHJ) is a legal services firm that is focused on seeking compensation for those who have been wronged. Erin Brockovich, the legal researcher who was made famous when played by Julia Roberts in the film bearing her name, is an ambassador for the firm.
They have traditionally focused on damages based plaintiff litigation such as for motor vehicle or workplace accidents. Five years ago, 70% of revenue came from personal injury claims, whereas now it has fallen to 46%. In its place they have diversified into other areas, including family law, medical negligence and class actions.
Source: FY22 Results presentation, 26/8/2022
During 2022 they were successful with a class action against Johnson & Johnson which took almost 10 years, relating to faulty prolapse mesh and tape implants affecting up to 12,000 Australian women. They were also successful in a number of other class actions which have become a significant source of revenue growth.
Shine’s revenue has been growing steadily at about 8% per annum since they listed in 2013. Revenue growth accelerated last year to 15% resulting in total revenue of $215 million.
In most cases, Shine only receives a fee if they win the case. That means Shine carries the risk of an unfavourable outcome. They manage this through their experience as to what cases are likely to succeed and therefore they should take on. In addition, some large class actions are fully or partially funded by third parties. In these cases, the funded portion of fees is not contingent on a successful outcome.
It is important to understand how revenue and consequently profits, are recognised in Shine’s books. Revenue is recognised as work is performed on a case. This means that revenue can be recognised in the accounts before the case has been resolved and well before the cash has been received. The revenue amount is determined by making assumptions about the probable success rates. So the accuracy of the revenue figure is highly dependent on the assumptions regarding success rates.
When analysing the balance sheet there is a large asset called work in progress. In 2022 this equated to $332 million. This represents revenue that has been recognised from cases that are still in progress. The revenue has not yet been invoiced. About 55% of this…
