Is now the time to dump its shares?
IT HAS been a hair-raising fortnight for Burford Capital – and its investors. On August 6, the shares opened at £13.82. By close of play on August 7, they were at £5.93, having tumbled as low as £3.94 at one point on that fateful Wednesday. On Friday, the stock closed at £8.03.
The cause of this rollercoaster ride was a vicious attack from Muddy Waters, the US-based short-seller – and an almost equally vigorous fightback from Burford Capital’s management.
Burford’s bonds have been caught in the crossfire too. Over the past five years, Burford has raised more than £500 million in the bond market. The company has launched four bonds, aimed at retail investors and paying annual coupons (interest) of between 5 and 6.5 per cent.
Some of these bonds had risen from their £1 issue price to more than £1.11 before Muddy Waters struck. By Friday, the prices ranged from 81p to 94p, though, like the shares, they had fallen far more dramatically immediately after publication of the Muddy Waters report.
The battle between Burford boss Chris Bogart and Muddy Waters founder Carson Block will almost certainly provoke more volatility in both the shares and bonds in the coming days and weeks. Block chooses his victims with care and is single-minded once he does so. Burford Capital funds litigation cases and Bogart himself was a litigation lawyer, well used to the cut and thrust of a good fight.
Who will win – and what should investors do in the meantime?
The Mail on Sunday’s share tipping column Midas (see Page 62) recommended Burford shares and bonds in July 2016, when the stock was £3.30 and the bonds issued earlier that year were £1.02.
Midas looked again at the company just two months ago, because it was one of the core holdings in Neil Woodford’s beleaguered Equity Income Fund. At that point, the stock was £15.15 and we suggested that investors might choose to sell some but not all of their shares. Those who did so will be feeling pretty clever now.
But what about everyone else? Do they keep their shares and bonds, in the hope that Bogart’s counter-attack sends prices soaring back to where they were last month? Or do they sell out now, for fear of what the future may bring?
MIDAS VERDICT: Shareholders who bought when the stock was worth £3.30 back in July 2016 have more than doubled their money, even after the past fortnight’s shenanigans. And they have received more than 25p in dividends, with another 3.5p on the way. Bond holders are also in the money. Even though the bond price has fallen by about 12p since 2016, they will have received coupons of almost 18.5p. Some of the most seasoned investors in the world live by the adage: ‘No one ever lost money by taking a profit.’ For all but the most adventurous investors, that adage is worth heeding with Burford now. Sell and sleep easy.