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¢.
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.
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.
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.
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.
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.