This morning, Burford issued an announcement giving an update on its investment commitments in 2017. The second half of the year produced almost twice as much in the way of commitments compared with the first. The total for the year of $1,343.5m, compares with $488m in 1H2017, giving $855m of new commitments for the second half. Of the total, $698.3m (52%) were balance sheet commitments, with the remainder for funds and other vehicles. Investors should note that cash invested will have been lower, but these figures have not been disclosed.
The largest proportion (54%) is for portfolio finance, which has been Burford’s most common investment for some time. Recourse finance makes up 35%. Legal risk management exposure, which is entirely contingent, has actually fallen slightly since the half year, but is a small proportion.
Burford has not given an indication of its cash position, but has said that it isstarting talks with fixed-income investors about a new bond issue. Given the success of the previous bond issues, and limited ORB issuance, we believe that another retail bond issue is the most likely option.
We have made no adjustments to our estimates, but the slight fall in the share price since the last announcement has made the rating more attractive. The prospective P/E for 2019 of 18.7x is not excessive for a growth company, with a 16.5% RoE giving strong metrics all around.
The investment portfolio is still diversified, with exposure to over 500 claims, but retains some very large investments, which means revenue may be volatile. As the company matures, we would expect that to decrease but not to disappear. The Teinver case shows that this volatility is not simply a negative.
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 will continue to produce strong earnings growth.