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Hardman & Co

Burford Capital Petersen appeals to investors

Burford Capital (LON: BUR) has made a double announcement about the Petersen case. Argentina had appealed to the US Supreme Court over the decision about where the case will be heard. The Court has declined to hear the appeal, so proceedings will take place in the US. Burford has also sold another 10% of its entitlement in the case for $100m; implying a market price of $1bn, ca.25% above the value implied by the smaller July 2018 transaction. Additional disclosure is that the sale took place to 11 institutional investors, with 40 having participated in the market now. This adds credibility to the valuation generated by the transactions to date.

  • Teinver: At the end of last month, Burford announced that Argentina’s annulment application in the case had been dismissed. This will allow the $7m value for the put option to be released. This case generated a $107m return on a $13m investment, with 722% RoIC and 39% IRR.
  • 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, the litigation investment business should continue to produce strong earnings growth.

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