Burford Capital

Fund business shows good progress

15 Dec 2017 / Corporate research

This morning Burford issued an announcement giving an update on their fund management business and some changes in management. Burford acquired Gerchen Keller Capital (“GKC”) one year ago. This has been integrated successfully, with positive news in 2017 on fundraising and performance fees earned. The three principals at GKC took on senior roles within Burford. Now, having completed the integration, they are redefining their roles within the company. They will remain involved as Senior Advisors and serve on the Investment Committee, rather than continuing in executive roles.

  • Financial update: In 2017 Burford expects to earn $13m in management fees from the funds, with another $3m from performance fees. The latter is ahead of their expectations at the time of acquisition. One of the investments that Burford took onto its balance sheet has also been resolved with a $2.9m gain.
  • Management changes: The most significant announcement is the formal appointment of Elizabeth O’Connell as CFO. Some of the other promotions appear to be replacing the executive roles that the GKC former principals would have been fulfilling.
  • Valuation: We have made only small adjustments to our estimates, but with the shares having largely traded in a range in 2017H2, valuation has not changed much. The prospective P/E for 2019 of 20.4x is not excessive for a growth company, with a 16.5% RoE giving strong metrics all round.
  • Risks: The investment portfolio is still diversified, with exposure to over 500 claims, but retains some very large investments, which means revenue may be volatile. As the company matures we would expect that to decrease, but not to disappear. The Teinver 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.