Burford Capital Limited

Brief Description

Burford Capital, founded in 2009, provides specialized finance to the legal market. It operates as a finance and professional services company worldwide with principal offices in New York, London and Chicago. The company offers a range of legal finance and litigation finance solutions to lawyers and clients engaged in litigation and arbitration.

Its businesses include litigation finance and risk management, asset recovery and other legal finance and advisory activities.

Stock price

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Update on 17 Oct 2018

This update is added to include data from the 2018 Litigation Finance Survey. The headline figure is that:

237% growth in use by lawyers since annual survey began

2018 Litigation Finance Survey

In particular its observed that understanding of litigation finance lags awareness, pointing to opportunity ahead.

Here is a brief summary of the opportunity:


Litigation finance in the US

  • More than half (53%) of US lawyers say are very aware of litigation finance
  • Seven in ten (72%) US lawyers who haven’t yet used litigation finance expect to do so within two years
  • US respondents reported the biggest increase in the use of litigation finance since 2017

Litigation finance in the UK

  • Two-thirds (65%) of UK lawyers say they are very aware of litigation finance
  • Over six in ten (63%) UK respondents who haven’t yet used litigation finance expect to do so within two years
  • UK respondents are most likely to agree that litigation finance can help turn in-house legal departments into profit centers

Litigation finance in the Australia

  • Over eight in ten (85%) of Australian lawyers say they are aware of litigation finance
  • Over half (55%) of Australian lawyers who haven’t yet used litigation finance expect to do so within two years
  • Australian respondents are most likely to agree that litigation finance is a growing and increasingly important area in the business of law

The full article can be found here.

Whilst one would expect such an article to have large bias as it is written by the main beneficiaries, it nevertheless highlights the potential opportunity that exists.

At the time of writing, the equity metrics for BUR are:

pe ratio (yhoo) 12.65
market cap3669 mill
revenue (2017)340 mill
net income250 mill
pe (LEM)
14.5
total assets1499 mill
total liability701 mill
liability / asset~50%


London Stock Exchange

Burford has been publicly traded on the London AIM Stock Exchange (BUR:LN) since October 2009 and issued further shares in a follow-on in 2010. The company currently has 204.5 million shares outstanding. In 2017, Burford received the AIM Award for Innovative Fundraising of the Year.

Basic financials

Burford has a market cap of 3,327 million GBP (approximately $4,491 mill).

According to its latest financial reporting, top line income (revenue) increased by 109% to $341.2 million in 2017 (2016: 163.4 million), driven by a 127% increase in income from litigation investment to $318.2 million (2016: $140.2 million). The bottom line (profit after tax, PAT) was $249 mill. In the same period, Burford made $1.3 billion in new investment commitments.

With the above numbers the TTM earning multiple is 18x which is high compared to the FTSE index of 14.25x. LEM therefore seeks an increase in revenue of ~ 25% at the next announcement (pro-rata to a full year) taking PAT to $320 mill and PBT to $435 mill. Without such, further performance in share price is not expected.

Key Fundamentals31-Dec-1331-Dec-1431-Dec-1531-Dec-1631-Dec-17
Revenue ($ m)60.6682.03103.01163.4342.61
Pre-Tax ($ m)2.1547.3267.88104.05249.18
EPS1.26¢22.21¢31.52¢52.89¢119.72¢
PE159.768.499.1713.3113.04
PEG-1.840.010.220.20.1
EPS Growth-86.86%1662.70%41.92%67.34%126.98%
Dividend Cover0.243.173.945.7810.88
Dividend Yield2.60%3.71%2.77%1.30%0.70%

Dividends

Burford Capital Limited (“Burford” or “the Company”), a leading global finance firm focused on law, has previously proposed a 2017 final dividend of 7.95 US cents per ordinary share to be paid on 22 June 2018 to shareholders on record as of 1 June 2018.

For shareholders who receive their dividend in Sterling, the dividend is 5.959074 pence per share, based on an exchange rate of £1 = US$ 1.3341 set on 5 June 2018.

This represents a yield of 0.375% for that div and 0.5% for the year (5.96 + 2.32 = 8.28p with shares trading around 1600 p). So the dividend reward is small relative to growth potential.

Market size and growth

BUR is regularly asked about the size of its potential or addressable market. This is an unanswerable question at this stage of the development of this industry. It is like asking what the addressable market was for iPhones in 2007 – the answer was most of the world’s population, but that answer didn’t help anyone. The challenge is distilling the global pool of legal fee spending and claim value – which is almost unimaginably enormous – into the portion of that pool that is theoretically addressable by BUR, and doing so without history to guide us. We do know that each year (i) vast amounts of money – hundreds of billions of dollars – are spent globally on legal fees and (ii) vast numbers – probably millions – of litigation claims and other matters involving legal or regulatory risk come into being and that hundreds of billions if not trillions of dollars change hands in resolving those claims.   However, we have no data to enable us to project what proportion of the total legal pie BUR and its competitors could occupy in the future except to say that we are not worried about market saturation – quite the opposite (at this point in time). This will however change as the competition increases and margins begin to decrease as a result of such.    

  • The number of US private practice lawyers who said their firms have used litigation finance directly grew five-fold from 2013 to 2017, from 7% to 36%, but significant upside remains at firms that have not yet used litigation finance and (because an innovation by one partner may move slowly to colleagues at the firm) among the many still inexperienced litigators at firms that have.
  • Portfolio financing remains in its relative infancy, with only 31% of litigation finance users having done a portfolio financing transaction compared with 88% for single cases.
  • At least 11 $100+ million firms have been competing for at least four years.

The share price trend is upwards, with an acceptable earnings multiple (and a small dividend – with good 10x cover – as above) and reasonable consistency. Without predicting too far into the future, this looks set to continue so long as revenue and earnings per share continue their steady growth. The trend over the past 3 years has been approximately 0.75% per day (on a simple basis).

LEM looks forward to the interim 2018  results  due on Wednesday 25 July 2018 at 7:00am (BST), followed by a conference call for investors and analysts at 2:00pm (BST) that day. This will indicate the near term expectations of the company and recent developments.

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