Burford Capital’s share price is rising steadily as it claims the latest results show that concerns about its business model that saw a short-selling attack last year are misplaced.
The AIM-listed litigation funder is also set to launch on the New York Stock Exchange in a fortnight in a dual listing that it said would give the company access to more investors.
Results published last week for the first half of 2020 said cash generation and receivables from Burford-only investments – rather than those involving third parties – were up 35% to $486m (£376m), compared with the same period in 2019
Burford is now just under five times the size of its nearest publicly traded competitor.
During the first six months of 2020, the rate at which Burford clients lost their case was just 0.3%, the lowest for five years.
New commitments dropped in the first half because of Covid-19 – from $751m to $194m – but Burford predicted “a likely significant uptick in litigation activity as the world normalises”. It said the US has more than 5,000 Covid-related lawsuits filed already.
“Our pipeline is considerably busier now and we do not expect that level of downturn to persist in the second half, although like the rest of the world we find predicting the next few months difficult,” the half-year report said.
“At the same time, while some courts shifted into remote operation without missing a beat, a number of courts slowed down significantly. Many corporate defendants used the pandemic as a device to try to avoid progressing with litigation and were reluctant to settle cases due to liquidity concerns.
“We did not see settlement activity return in earnest until June, and we still see court slowdowns and defendant efforts to capitalise on the virus. It is important to bear in mind that delay for us is simply deferral—and is often profitable for us.”
Chief executive Chris Bogart attributed the results down to “some substantial portfolio matters resolving highly profitably to drive an increase in cash on the balance sheet”. As at 15 September, Burford’s balance sheet had $316m of liquidity.
The company told investors that it expected to receive cash proceeds of $423m from a related group of 18 cases.
“Given this latest substantial success, Burford’s return on invested capital since inception for its capital provision-direct business has risen to 97% from 88% at the end of 2019.
“If it were not already clear, this latest outcome should put an end once and for all to any question about Burford not being able to repeat the selection and management of outperforming matters. It should also put an end to any liquidity concerns.
“The simple fact is that such outperformance is a regular part of our litigation outcomes, just as losses are, albeit with asymmetrically lower financial impact. Burford has demonstrated its ability, time and time again, to include such outperformers in its portfolio.”
Investors seem to have responded positively to this message – in the few days since the announcement, Burford’s share price has gone from 625p to 708p at the time of writing.
It is still a long way from the high of 2000p in August 2018, but having crashed in the wake of the Muddy Waters short-selling attack a year later, they dipped as low as 313p in mid-March, shortly before lockdown, but have been on the rise steadily since.
The half-year report said that “investors could be forgiven for asking why, in light of such strong results, our Burford-only (adjusted) profit after tax has declined by 29%” at $161m.
Part of the answer was the “sharp discrepancy between our cash and ‘book’ taxes”. It went on: “We paid less than $2m in cash taxes in the period, but we recognised $36m in tax expense. The explanation for this borders on the occult but that is how tax accounting appears to work these days.”
The US Securities and Exchange Commission and New York Stock Exchange have approved the dual listing, which should take effect on or around 19 October.
“We believe a US listing has the potential to increase liquidity in Burford stock and expose us to a new, deep pool of possible investors,” the company said.
In May, the High Court rejected Burford’s attempt to identify who traded in its shares last August in a bid to bring claims of market manipulation. It abandoned the claims as a result,