Burford Capital Limited

Introduction

Since the last report, written in 2018, Burford has undergone significant changes.

The market capital of the company was of the order of us$ 4 billion. The current market capital at the time of writing is approximately us$ 1 bill. The share price has dropped approximately 80% and the dividend yield has been less than 3%.

Observations

There are two key factors to the drop in price of Burford:

1. The release of a “short attack” document by Muddy Waters, a US research firm on 7 August 2019.
2. The Corona Virus in 2020.

Muddy Waters Report

It appears as though the muddy waters report was of limited credibility. Nevertheless, it remains a pressure on Burford management and shareholders require a discount to be invested in this company.

The effect of the short attack was to reduce the share price by 50% and therefore the price to earnings multiple to approximately 6x. This compared to the FTSE100 at approximately 15x at the time.

Corona Virus

The Corona Virus has effectively taken the entire global stockmarket to it’s knees. The first quarter of 2020 was the worst on record for many major indices including the SP500, FTSE100 and EuroStocks50.

By way of example, the FTSE100 has dropped by approximately 30% between the start of 2020 and the end of q1.

Financial status

The last financial report was produced on 13 Mar 2019. Burford is therefore comming up to it’s next anual report which will come under much scrutiny given the above two factors.

The data is rather sparse, but provided here for completeness.

The KPI will be:

• total income: 420 million us$
• pbt: 315 mill us$

If PBT is maintained and assuming a FX rate to GBP of 1.25, then the company would earn ~ 250 mill GBP. This would look good relative to the current market capital of 730 mill at a pre-tax earnings yield of 34% and post tax yield of 27%.

Conclusion

In stark contrast to rhetoric from management, the general market has clearly discounted the company, be it from lack or trust by the points raised by Muddy Waters or from the ongoing economic uncertainty caused by the Corona Virus.