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Burford: hung jury

Despite strong headline figures, the jury is out on the litigation finance outfit
July 25, 2019

Given the complexity and opacity of its accounts, Burford Capital (BUR) sparks sharp reactions whenever it opens its books. Soon after half-year results were released, shares in the litigation finance outfit were up 7 per cent, as investors swooned at a 40 per cent surge in income, a 36 per cent leap in post-tax profits, and a 32 per cent internal rate of return. Once the market digested the half-years with lunch, the stock was off 6 per cent.  

IC TIP: Buy at 1,552p

Disquiet is rising. In June, hedge fund Gladstone opened a 0.5 per cent short position. Canaccord Genuity expects a capital raise before 2020. Memories of last year’s aborted IPO by peer Vannin Capital linger.

The bear argument suggests Burford has inflated its past returns on partially realised investments, faces lower future returns, walks too-fine a line between commitments and self-funding, and makes up for a lack of earnings visibility by prematurely booking an increasing proportion of unrealised gains when valuing its investments.

Pointing to these results, Burford bulls could counter that return on invested capital climbed to 98 per cent, cash holdings hit $297m (£241m) shortly after the period end, and unrealised gains dropped to 49 per cent of income, below a three-year trend.

Berenberg forecasts adjusted earnings per share of 176¢ in 2019, rising to 190¢ in 2020.

BURFORD CAPITAL (BUR)  
ORD PRICE:1,552pMARKET VALUE:£ 3.39bn
TOUCH:1,551-1,555p12-MONTH HIGH:2,075pLOW: 1,288p
DIVIDEND YIELD:0.7%PE RATIO:11
NET ASSET VALUE:717¢NET DEBT:26%
Half-year to 30 JunTotal operating income ($m)Pre-tax profit ($m)Earnings per share (¢)Dividend per share (¢)
201820615977.23.67
20192922271014.17
% change+42+43+31+14
Ex-div:14 Nov   
Payment:5 Dec   
£1=$1.27