Innovative investment deals push Burford’s profits ever higher

Middleton: Unbridled optimism about the future

Litigation funder Burford Capital has unveiled a 36% rise in operating profit for the first half of 2019 as it continues to make record levels of investments – and in increasingly innovative ways.

Its half-year results showed income up 40% to $287m (£230m), with operating profit up 37% to $251m and profit after tax up 36% to $225m. Total assets rose 37% to $2.25bn.

Burford now has a 98% return on invested capital, net of losses, and made a record $751m in new investments, up 36% on the same period in 2018, “providing foundation for future growth”, the company told investors.

Within this, core litigation finance – single cases and portfolio investments – saw a significant jump in new commitments to $381m, a 47% increase

The company’s interim report for the six months said: “Burford’s largest new commitment in the period was for $130m in a new form of portfolio finance that goes well beyond anything seen in the market before and was a transaction over a year in the making with a major [unnamed] global business.

“The lengthy and complex process of making this investment was a collaborative one with the client, without the involvement of competitors; indeed, we do not believe that any of our competitors would have been able to do such a deal, which required our unique combination of scale, structure and experience. We now have a template for a viable offering to other clients going forward.”

In another case, Burford took equity in a “relatively early-stage technology company” as well as a litigation return in exchange for financing “business-critical litigation”.

The other commitments were made up of complex strategies – “investments where there is an asset value supporting the litigation investment” – post-settlement work, asset recovery and legal risk management.

The report said the asset recovery business had “a breakout period” as it moved from solely investing in single judgment matters to two novel investments.

One involves an international bank with substantial asset recovery work that exceeds its internal capacity outsourcing it to Burford, “with the ability to structure desirable economics based on recoveries across the portfolio as opposed to on a single-investment basis”. The other sees Burford not only financing a specialist law firm’s portfolio of matters going forward, but also having “an equity-like participation in the firm’s success overall as a part of agreeing to make capital available”.

The report also expressed “regret” at the recent volatility of Burford’s share price – from reaching 2035p in August 2018, it dipped to 1298p in December. It closed yesterday at 1669p.

“All we can do is to continue to do our best to perform consistently with the strategy we are pursuing and trust the market to value us appropriately – and continue to be as transparent as we can about the business and our decision-making,” it said.

But Burford has been a stand-out performer for investors for years – at the end of 2014, the share price was just 121p.

Chairman Sir Peter Middleton said: “As Burford approaches its tenth anniversary, we have unbridled optimism about the future.

“The industry continues to grow rapidly, due in large part to the pace we set by evolving our products and services to meet the increasingly diverse demands of the users of legal finance.

“Burford is well positioned to continue to lead the global legal finance industry through the next decade of growth.”

Chief executive Chris Bogart added: “Burford has had a momentous first half, with profits exceeding $200m and assets surpassing $2bn for the first time. Income from our core litigation investment portfolio was driven by a blend of attractive cash realisations across multiple vintages.

“Growth in demand for our capital and our capacity to respond with innovative new solutions are the hallmark of our outright industry leadership and reflected in record new investment commitments.”

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