Burford Capital

23 January 2015
By Maynard Paton

*** EDIT: 26 FEB 2015: I HAVE SINCE SOLD THIS SHARE. PLEASE READ THE COMMENT SECTION AT THE END OF THE POST *** 

Time now to delve into Burford Capital (BUR), a £266m litigation-financing business that joined my portfolio following some very scant research.

The basis of my investment was:

• Litigation funding was a nascent, fast-growing industry. At the time, BUR said business was “booming”.

• The firm was claiming fantastic returns on invested capital (some 70%!).

• I assumed BUR’s operations would not be affected by recessions or market crashes.

• A corporate reorganisation had aligned the main executives with shareholders.

• The shares traded at book value.

• Good future progress might see the shares re-rated well above book value.

• A fund managed by ace investor Neil Woodford owned 45%.

It wasn’t in-depth stuff and luckily I’ve managed to enjoy a reasonable return. I bought between November 2012 and February 2013 at an average of 101p, and I then sold 51% of my holding at 120p between October 2013 and January 2014. The recent market price is 130p.

However…I don’t like to rely on scant research with my investments. So I’ve finally got to grips with BUR and its convoluted accounts to gauge the opportunity ahead, and in particular to understand…

…why the company’s fantastic returns on invested capital haven’t translated into fantastic share-price growth!

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