Burford Capital

Description

Burford Capital was formed in 2009 to exploit an attractive growth opportunity in the nascent litigation finance industry. In pursuing a market-listing in the immediate aftermath of the financial crisis, Burford couldn’t have chosen a more difficult time to raise capital. Nevertheless, the company successfully floated in October 2009 at 100p, albeit with a concentrated shareholder register, and we have been substantial investors in the business ever since.

Today, Burford’s business activities include litigation finance, investment management, asset recovery and a wide range of legal finance and advisory activities.

Investment case summary

Burford Capital is a young, dynamic business that is proving highly successful in its industry – indeed, its dominance in litigation finance has helped to define the industry as it has developed. It is also a great example of the benefits of our patient capital investment approach.

Its impressively astute management team has executed its ambitious growth plans very successfully since the company was formed and, although the market was initially slow to recognise the opportunity, in recent years, the share price performance has been appreciatively more positive. The current share price is many multiples of the price at which the Woodford Equity Income Fund built its stake.

The company has a strong track record of backing the right legal cases, many of which have delivered exceptional returns on investment. This has allowed the company to grow rapidly and develop successful business divisions in adjacent areas such as investment management and legal advice, through a combination of organic investment and acquisition. Moreover, Burford takes a conservative approach to its accounting practices and in the way it runs the business.

The shares have performed well as Burford has successfully capitalised on the early-stages of the opportunity in its chosen field of expertise. However, there is still a huge market opportunity for the company to exploit: by way of example, its largest client has 1,000 partners and only 30 of them currently use Burford’s services. The company is well-funded for the next phase of its development and we are confident that it can continue to deliver strong and sustainable growth in the years ahead. In the context of this growth, its shares continue to look profoundly undervalued.

Ask a question about our investment in Burford Capital

Fund exposure
Equity Income Fund 5.02%

As at 30 November 2018

Segmentation
Geography United Kingdom
Industry Financials
Themes Special situations

Source: Woodford

Share Price

Market Quotes by TradingView

Commentary

Funding update

Following its recent equity raise, Burford has today announced further details of its plan for funding $1.6bn of new litigation investments. Capital will come from three sources, including a “strategic capital relationship with a long-term sovereign investor” which provides a commitment to a $1bn pool of capital. In addition, Burford has launched a new private fund, The Burford Opportunities Fund for $300m, and will commit direct balance sheet investments for $300m. In aggregate, Burford will invest 42% for each new litigation investment, but will receive 60% of the resulting profits.

From our perspective, this looks like an excellent deal with sovereign wealth that not only gears Burford’s balance sheet investments but has also created a long-term partner keen to put capital to work. Burford continues to go from strength to strength and, in trading on 11.6x 2019 consensus forecast earnings (Source: Bloomberg, based on Burford’s closing share price 18 December 2018), it looks profoundly undervalued.

Stephen Lamacraft
19 December 2018

Equity raise

Yesterday, Burford Capital announced it was placing up to 5% of its current issued share capital, as part of a broader expansion of the company’s capital, in order to continue to grow and expand the business.

Burford intends to increase the pace of its ongoing business expansion by deploying staff into new geographies (both underserved markets in the United States and new global markets such as Australia and Germany). It also intends to grow its market-leading team in existing locations to manage the significant portfolio growth experienced over the last two years.

This morning, the details of the capital raise have been confirmed. Burford has raised more than $250m by placing shares at £18.50. Unsurprisingly, this represents a discount to the price at which the shares were trading before the equity raise was announced, but it is a positive long-term development, in our view. Burford has not raised equity since 2010 but clearly sees further attractive opportunities in litigation finance, the industry it has effectively pioneered over the last decade. The company is raising equity to grab that opportunity, which is exactly what it should do be doing.

Stephen Lamacraft
2 October 2018

Strong interims

An extremely strong set of interim results from Burford Capital this morning, well ahead of expectations. Profit after tax is 17% higher than last year at $166m, earnings per share climb 21% to $0.77, the dividend is up 20% and cash generation rises 61% to $299m. Meanwhile, the company committed more than half-a-billion dollars to new investments in the first half, which points to the continuing growth potential of the business.

This is a great company to own for the long run, as it becomes increasingly dominant in the growing litigation finance industry.

Stephen Lamacraft
25 July 2018

Strength to strength

An excellent set of full year results from Burford yesterday, well ahead of all estimates. The shares were, deservedly, up very strongly in response (closed +31% on the day).

Highlights include:

  • Net profit after tax of $264.8m +130%
  • Earnings per share +127%
  • Dividend per share +20%
  • Record investment commitments of $1.34bn sowing seeds for future profits
  • Assets under management in investment management business now $1.7bn (from $1.3bn)

The company continues to demonstrate there is an explosion in demand for its services globally, which we expect to continue. Recycling capital into new opportunities is key to this growth – the announcement earlier this week of the sale of its stake in the Teinver investment (relating to the expropriation of two airlines by the Argentine government) for $107m, representing a return on invested capital of 736%, is an excellent example of its ability to do this in the fast-developing secondary market for litigation investments.

Paul Lamacraft
15 March 2018

Woodford Investment Management Ltd is authorised and regulated by the Financial Conduct Authority (firm reference number 745433). Incorporated in England and Wales, company number 10118169. Registered address 9400 Garsington Road, Oxford OX4 2HN.

Woodford Patient Capital Trust plc is incorporated in England and Wales, company number 09405653. Registered as an investment company under section 833 of the Companies Act 2006. Registered address Beaufort House, 51 New North Road, Exeter, EX4 4EP.

The Woodford Funds (Ireland) ICAV (the “Fund”) has appointed as Swiss Representative Oligo Swiss Fund Services SA, Av. Villamont 17, 1005 Lausanne, Switzerland. The Fund’s Swiss paying agent is Neue Helvetische Bank AG. All fund documentation including, Prospectus, Key Investor Information Documents, Instrument of Incorporation and financial reports may be obtained free of charge from the Swiss Representative in Lausanne. The place of performance and jurisdiction for all shares distributed in or from Switzerland is at the registered office of the Swiss Representative. Fund prices can be found at www.fundinfo.com.

© 2019 Woodford Investment Management Ltd.
All rights reserved.

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