Another record set of results

Once again Burford has produced record revenue and profits, with some of the 2017H1 figures beating the FY2016 figures. Overall revenue grew 130% to $175.5m with adjusted profit after tax up 170% to $142.7m. The main driver continues to be the litigation finance business, underpinned by the two secondary market sales in the Petersen case which brought in $106m of cash, while de-risking the balance sheet. Profits in this segment grew from $52.6m in 2016H1 to $150.3m. The interim dividend has been increased by 14% to 3.05¢.

• Other businesses: Fund management was a little behind our expectations, but will do better in H2 with the addition of fees from the Complex Strategies fund. Asset recovery experienced the volatility of a small book of investments and a shift to focus more on contingent investments. The insurance business continues its expected run-off.
• Complex Strategies: Earlier this month Burford announced a $500m fund raise for their new fund, including a $150m investment from its own balance sheet. This introduces some accounting changes, with the timing adding some complications which we explain in this note.
• Valuation: With performance again exceeding expectations, Burford’s rating has grown at a slower rate than the strong share price performance. The prospective P/E for 2019E is only 17.4 times, while a prospective 16.5% RoE with strong growth suggests strong metrics all round.
• Risks: The investment portfolio is now quite diversified, but still has some very large investments, which means revenue may be volatile. The Petersen case provides a concrete example of this. As the company matures we would expect that to decrease, but not to disappear.
• Investment summary: Burford has already demonstrated an impressive ability to deliver good returns in a growing market while investing its capital base. As the invested capital continues to grow, the litigation investment business is expected continue to produce strong earnings growth.