Stellar year for Burford Capital

Burford Capital (BUR) has had an excellent year. The litigation funder saw realisations jump by 42 per cent to $496mn (£400mn), with courts “back in full swing”. In other words, significantly more of its lawsuits are concluding – and concluding in its favour. Cash generation has also improved, with cash receipts leaping by 49 per cent to $489mn.

A lot of recent excitement has centred around a $16bn final judgment against Argentina, relating to the seizure of Argentine oil major YPF in 2012. Even when YPF assets are stripped from the equation, however, Burford’s unrealised and realised gains are still up 67 per cent year on year. 

The tricky part is knowing what comes next. Increased deployments in recent years and relatively low levels of resolutions could mean that more big gains are just around the corner. Meanwhile, the YPF case could ultimately result in a huge cash injection, assuming Argentina loses its appeal and eventually pays the damages. 

This is far from guaranteed, however, and during an earnings call analysts questioned whether 2023 was an “outlier on the high side” and asked whether the Covid backlog had temporarily boosted business. More generally, predicting the exact timelines and outcomes of lawsuits remains as tricky as ever – even if Burford says its portfolio is well-diversified in terms of size, client concentration and subject matter. 

This lack of visibility makes Burford a difficult company to value. The group currently trades on a forward price/earnings ratio of 8.9 versus a five-year average of 7.8, but its valuation has bounced around a great deal in the past couple of years. With analysts forecasting a sizeable drop in revenue and profit next year, we remain on the sidelines. Hold.

Last IC view: Hold, 1,286p, 15 Sep 2023