The mar­ket sell-off has given the gift of cheaper Bur­ford Cap­i­tal shares

The AIM su­per­star is now trad­ing 15% be­low the price at which big in­vestors re­cently bought new stock

Shares - - GREAT IDEAS -

With the FTSE 100 hit­ting seven-month lows and the FTSE 250 at an 18-month low, in­vestors are be­ing given a rare op­por­tu­nity to buy qual­ity com­pa­nies at knock­down prices.

One name which im­me­di­ately stands out is Bur­ford Cap­i­tal

(BUR:AIM), which pro­vides fi­nance for law­suits in re­turn for a share in the awards.

The law in­dus­try turns over more than $800bn a year and lit­i­ga­tion fi­nance is a grow­ing trend with huge po­ten­tial to pro­vide cap­i­tal to law firms and in-house le­gal teams.

Bur­ford has grown its ‘as­sets’ or cash ad­vanced to com­pa­nies to fight law­suits by 350% in the last four years as the busi­ness has taken off.

In­come from these as­sets has grown by over 650% in the same pe­riod, with op­er­at­ing prof­its av­er­ag­ing 90% (in the first half of this year they hit 93%).

These kind of re­sults helped the shares to rocket from 200p in 2016 to £20.00 in Au­gust this year, but the re­cent mar­ket sell-off has taken them back to £15.62.

The busi­ness is highly cash­gen­er­a­tive which al­lows it to keep in­vest­ing and new com­mit­ments hit a record

$540m in the first half of the year.

Growth is com­ing both from new clients, who usu­ally need fi­nance for sin­gle cases, and ex­ist­ing clients who move from sin­gle cases to whole port­fo­lios of cases.

Around three quar­ters of law firms for which Bur­ford fi­nanced a sin­gle case have gone on to give it fur­ther busi­ness.

The com­pany fo­cuses on large cases and is care­ful to spread its risk by claim type, claimant, le­gal ad­viser and law firm to avoid con­cen­tra­tion.

As the mar­ket leader, with close to a 60% share ac­cord­ing to an­a­lysts at bro­ker Keefe, Bruyette & Woods, Bur­ford can take on more trial risk than its com­peti­tors which is a big com­pet­i­tive ad­van­tage and gen­er­ates higher re­turns.

To help fi­nance its ex­pan­sion the com­pany raised £193m from in­sti­tu­tional in­vestors at £18.50 per share at the be­gin­ning of Oc­to­ber. The funds will be used to grow the busi­ness in the US and Aus­tralia, which are par­tic­u­larly liti­gious mar­kets and where there is good scope to pick up new clients.

Due to the fall in stock mar­kets in­di­vid­ual in­vestors can pick up the shares to­day at a 15% dis­count to the ‘smart money’ (the price at which in­sti­tu­tions paid for the new shares a few weeks ago) which is al­most un­heard-of.

While the shares are weak and there’s no news flow we would pick them up as in­ter­est is bound to be rekin­dled when the com­pany hosts its in­vestor day on 12 Novem­ber. (IC)

DIS­CLAIMER: The au­thor owns shares in Bur­ford Cap­i­tal

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