A spectacular set of full year numbers from litigation finance provider Burford Capital (BUR:AIM) are getting the reaction they deserve from the market as the shares gain 29.4% in value to £14.10.
Growing investor awareness of the story, which we have covered several times in Shares, most recently in this in-depth article, and rapidly improving performance have catapulted the firm from an £80m valuation at its 2009 IPO to one of the largest companies on the junior market with a market cap of nearly £3bn.
The nature of Burford’s business, which involves a certain amount of confidentiality, means predicting financial performance in the short-term can be tricky.
As such revenue and adjusted pre-tax profit of $341.2m and $264.7m respectively are both around 20% ahead of what was forecast by house broker Liberum.
BURFORD’S BUMPER RETURNS
Burford provides capital to fund lawsuits in return for a share of any resulting compensation award and today’s results emphasise how lucrative this activity can be.
Concluded investments (or cases in other words) delivered a 75% return on invested capital (ROIC) and internal rate of return of 31%.
For context consistent returns on capital of 15% or more are usually considered to mark out a good quality business.
The first part of 2018 suggests there could be more to come from the company - with $128.5m committed to 12 new investments in the first two months against just $1m for the same period last year.
Liberum comments: ‘Clearly the balance of the litigation investment portfolio at year end which already exceeds our 2019 forecast, the strong start to the year in terms of commitments and the improved ROIC achieved year-on-year and versus our current forecasts poses meaningful upside risk to our estimates.’
