Burford Capital

Strong evidence that fair value is fair

17 Oct 2019 / Corporate research

In the aftermath of a dramatic period, Burford has provided additional disclosure that greatly improves understanding of its fair value process and its conservatism. The timing of when fair value adjustments are made has been well explained previously, with clear objective criteria. How the amount of each valuation change is determined has also had some clarification, with an objective core overlaid by adjustments that involve some judgement. Detailed data have also been provided on the 20 concluded cases that have had adjustments of $1m or more. All this adds considerably to the belief that Burford’s fair value is prudent.

  • Petersen: Burford has also provided additional information on the Petersen claim. While the 11 investors who recently bought in appear to be sophisticated, there was some speculation about their potential upside. Burford has shown that this could still be substantial, with all the usual caveats that apply to a single claim.
  • Market manipulation claims: Burford has published a report by Professor Mitts of Columbia University showing that there were trades on 6 and 7 August that seem to indicate spoofing and layering. It has gone to the High Court to obtain judicial approval for the London Stock Exchange to release identifying data.
  • Risks: The investment portfolio is highly diversified, with exposure to more than 1,100 claims. However, it retains some very large investments, which means revenue could be volatile, particularly in the smaller divisions. The Petersen case shows that this volatility is not simply a negative.
  • 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, we would anticipate that the litigation investment business will continue to produce strong earnings growth.
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