Burford Capital

No need to appeal these results

26 Jul 2018 / Corporate research

The 2018 interims yet again gave record figures, with the headline figures showing income and profits after tax both up 17%. The stand-out figure, however, was cash generation, which was boosted by the sale of the Teinver claim and came in at $299m. The main driver behind this growth remains the litigation finance business, which accounted for almost 95% of revenue. Revenue in this business rose by 21% and profit after tax by 23% to $185.4m. New business remained strong, with additions to investments up 19% on 1H’17, and total commitments increasing by 10%. Strong realisations offset some of this, and invested capital grew by 7% over the period.

  • Other businesses: The other business lines suffered from revenue volatility. Asset management did not get a recurrence of performance fees. Both insurance and asset recovery are in a transition phase. Each has the promise of future growth, but is likely to continue to have some revenue volatility for now.
  • Capital: Although cash generation was very strong, and Burford completed another bond raise, the company has indicated that it is looking at the best way to raise future funds. Partners III is fully invested, and the second half is usually stronger, suggesting balance sheet demands may be stronger in that period.
  • Valuation: Hardman & Co has raised its 2018 EPS estimates but lowered them for 2019 and 2020. The prospective 2019 P/E of 22.6x is not excessive for a growth company, with a 21.6% RoE giving strong metrics all round.
  • Risks: The investment portfolio is still diversified, with exposure to over 900 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 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.