Burford Capital

Equity issue ensures growth is not adjourned

05 Oct 2018 / Corporate research

Burford has placed 10.41m new shares with institutional investors through an accelerated bookbuild. The price per share was 1850p, making a total of £192.6m ($251.2m) raised before expenses. The funding will be applied to business expansion, with new geographies such as parts of the United States that have not been fully addressed yet, Australia and Germany specifically mentioned as well as adding to the team in existing locations. The announcement also mentions new products, which have been the topic of recent press releases, and it is clear that Burford has every intention of pushing its growth further.

  • Issue: The 10.41m shares represent approximately 5% of the share capital prior to the issue. The issue was filled quickly and was oversubscribed. Burford priced the offering at a 2.9% discount to the volume-weighted average share price since the release of the interim results.
  • Future fundraisings: While a fundraising was well flagged at the time of the interim results, Burford’s sustained growth means that it will continue to require capital to fund investments. The statement indicates that further debt and private funds will be raised in the near future.
  • Valuation: Hardman & Co has made minor adjustment to its earnings estimates, with the most significant being the increased number of shares. The prospective 2019 P/E of 22.0x is not excessive for a growth company, with a 22.3% RoE giving strong metrics all round.
  • Risks: The investment portfolio is still diversified, with exposure to more than 900 claims. However, it retains some very large investments, which means revenue could be volatile. As the company matures, we would expect that to decrease, but not to disappear. The Petersen case shows that this volatility is not simply a negative.
  • Investment summary: Burford has already demonstrated an impressive ability to deliver good returns in a growing market while investing its capital base. As the invested capital continues to grow, the litigation investment business will continue to produce strong earnings growth.