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OPINION

On the case

On the case
April 10, 2017
On the case

Adjusted pre-tax profit of $110m (£88m) for the 12 months to end-December 2016 was not only 62 per cent higher than in 2015, but a thumping 28 per cent ahead of consensus estimates. Cash generation was mightily impressive, too, buoyed by a 50 per cent hike in investment recoveries to a record $216m. In turn, this has enabled Burford to recycle some of the proceeds into new litigation cases, along with deploying the loan capital raised last year, to such an extent that the company increased new commitments by 83 per cent to a record $378m. Given that Burford generates an eye-catching annual internal rate of return of 27 per cent on completed investments, and a return on capital employed of 60 per cent, the new investments made should be highly supportive of future profits.

Admittedly, forecasting Burford's profits is fraught with difficulty given the nature of the business. Indeed, of the $140m of litigation income reported in 2016, a third related to net realised gains and the balance was fair value adjustments on litigation investments. Analysts at Numis Securities have upgraded their 2017 adjusted EPS estimate by 25 per cent to 64.8¢ and raised their 2018 estimate by 15 per cent to 86¢, implying the shares are rated on 15.5 times current-year earnings estimates, falling to 12 times 2018 forecasts.

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