Burford Capital Limited (LON:BUR) recently released its first-ever trading statement, covering cash activity in 2019. Group-wide commitments set a new record of $1.57bn, a 24% increase. Overall deployments were almost flat compared with 2018, at £1.07bn. In both, the Sovereign Wealth Fund (SWF) and fund arrangements increased their share. It was, however, a quiet second half for realisations on-balance sheet in the core litigation finance business. 2019 profits will be lower than in 2018, with Burford indicating that net realised gains will be ca.$20m-$30m lower than in 2018 and net unrealised gains ca.$50m-$70m lower.
- Returns: While on-balance sheet net realised gains were lower in 2019 than in 2018, the cumulative RoIC since inception ticked up slightly to 93% on $1.2bn of realisations (85% on $1bn in 2018). The aggregate IRR also increased from 30% to 31%.
- Cash: Group-wide cash generation increased 23% over 2019 to $997m. The majority of this increase was driven by post-settlement finance, which is shorter duration. The year-end cash balance of $192m was slightly up from $171m at the half year, but down on the $277m a year ago.
- Risks: The investment portfolio is highly diversified, with exposure to more than 1,100 claims. However, it retains some very large investments, which means revenue could be volatile, particularly in the smaller divisions. The Petersen case shows that this volatility is not simply a negative.
- Investment summary: Burford Capital 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, we anticipate that the litigation investment business will continue to produce strong earnings growth.
