RE: Broker Target raised13 Oct 2020 15:29
Hi all,
This is what Jeff himself said (joke)
.."Burford Capital Ltd - A Big Year Ahead
Key Takeaway
The HY results supported our thesis that the large commitment vintages of 2016
and onwards should start to have a bigger impact on the P&L from now on. We have
high conviction that the $262m receivable generated in the period will be collected, meaning BUR will emerge from the pandemic into a target-rich environment with plenty of firepower. We expect the US listing to be positive, and the YPF cases should go to trial in June. Our PT increases to 1,150p, Buy.
Good contribution from recent vintages: H1 realisations of $308m from the direct
portfolio included $266m from 18 related cases from three vintages (2016, 2017 and
2019). Although this means returns were fairly concentrated in the period, of the
other $42m realised, the bulk came from the 2017 vintage ($39m). So the bigger,
more recent vintages provided almost all the realisations, income and profit in the
period.
Collections will be strong in H2: The cases underlying the bulk of realisations concluded late in H1. They related to a North American Federal Statutory law case in the insurance sector; all avenues of appeal have been exhausted. The company's complete confidence in the creditworthiness of the defendant corresponds with the defendants in matters we can find which concluded before BUR's results on 28 April.
We, therefore, expect the company to collect the receivable in full, and most of it this year.
War chest building: We expect deployments to remain muted in H2, but slightly up
on H1, and the same for commitments. This means our balance sheet cash forecast
is $416m for the year-end, up from $316m reported as of 15 September. Assuming
the pandemic recedes next year and legal and business processes begin to return
to pre-Covid levels, 2021 could be a strong year for commitments, with deployments
picking up after that.
Investment case reinforced and doubts allayed: The H1 2020 earnings benefited
from high returns on 2019 commitments, meaning that BUR has made a 200%
ROIC or more on at least one asset from every vintage except 2012 and 2013, demonstrating that it can replicate past success. We also note the steady IRR of c.30% since 2015. The rigorous SEC registration process should put any doubts about BUR's accounting to rest, and the company is well funded, as noted above.
Cont/...
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