Corporate litigation is messy, expensive and time-consuming. So, even when they are confident they have a good case, company bosses are often discouraged from seeking legal redress. This is where Burford Capital steps in - the company provides the finance to pursue what it regards as legitimate claims.
- Impressive return on investments
- Cash to invest in further cases
- Entry into UK litigation market
- Good risk diversifier
- Profits stream could be lumpy
- Dividend still modest
Burford's plan is to build up a portfolio of investments in litigation cases that, in time, will generate a stream of profit. But revenues will always be lumpy because there is little telling when a case will be concluded. Burford works to even this out as much as it can by taking on both short- and long-duration work. Even so, the few City analysts who follow the company are reluctant to make profit forecasts – hence the shortage of detail in our table.
However, Burford's progress since its shares were floated in September 2009 has been good. The company was profitable in its first year and paid a dividend, albeit a modest one. By the end of 2010, Burford had invested around $140m (£89m) in cases - more than it raised in the flotation - and, by last June, this had risen to more than $175m. Since then, another $35m has been invested.
The returns are impressive. In the first half of last year, a case in the short-duration portfolio was concluded successfully, generating up to $16m profit on top of the $4m Burford invested less than a year earlier. Since then, another short case returned $4.5m on an investment of $2m. And the trend looks good: in the 16 months to December 2010, Burford made just $1.9m profit, yet followed that with $7.1m profit in the first six months of 2011.
| BURFORD CAPITAL (BUR) | ||||
|---|---|---|---|---|
| ORD PRICE: | 127p | MARKET VALUE: | £229m | |
| TOUCH | 122-127p | 12-MONTH HIGH/LOW: | 134p | 114p |
| DIVIDEND YIELD: | 1.8% | PE RATIO: | 30 | |
| PREMIUM TO NAV: | 20% | NET CASH: | $5.5m | |
| Year to 31 Dec | Net asset value (p) | Pre-tax profit ($m) | Earnings per share (¢) | Dividend per share (p) |
|---|---|---|---|---|
| 2010* | 105.4 | 1.9 | 6.7 | 2.22 |
| 2011 | see text | |||
Normal market size: 800 Market makers: 3 *From 11 Sep 2009 to end-Dec 2010 | ||||
Litigation is always risky, and Burford's success is tied to its ability to pick cases it will win. But when the company decides to finance a case, its agreement with the litigant allows it to withdraw at any time without financial penalty, notably when new information compromises the decision to invest. There are checks the other way round, too. For example, when a $10m commitment to an insolvency case was followed by the insolvent company securing funds and cancelling the insolvency, Burford picked up a $340,000 break fee.
So far, Burford has operated only in the US, but its bosses always intended to start in the UK. The first step came recently with the acquisition of Firstassist Legal Expenses, funded by available cash. Firstassist is the UK's leading provider of after-the-event litigation insurance, where the defendant of a case buys insurance that will pay the expenses if the case is lost. The key point about the acquisition, though, is that it gives Burford control of 32 professionals and an underwriting division in the UK. It also puts it into contact with hundreds of UK law firms where Burford can offer funds to finance suitable cases. Not that Burford should be labelled an ambulance chaser - it only finances commercial cases.
