Time to dump AIM super-stock Burford Capital Limited?
Shares in litigation specialist and Neil Woodford-backed Burford Capital(LSE: BUR) soared almost 12% in early trading this morning following a superb set of half-year figures from the company.
After such a great run of form over the last 18 months however, should investors now consider leaving the party? Here's my take.
In the six months to the end of June, the Guernsey-based business achieved the best ever results in its history.
Income at the £2.2bn cap increased by 130% to $176m, much of this driven by a 148% rise in investment income to $162m. Investment management and insurance income generated $7.5m and $4.6m respectively.
Remarkably, profit over this period exceeded the record earnings achieved over the whole of 2016. Increases of 151% in operating profit (to $155m) and 170% in pre-tax profit (to $143) were recorded.
Over the reporting period, Burford generated $174m in cash from investments on its balance sheet. Only this week, an arbitration tribunal ruled that the company was entitled to around $140m of a $324m settlement following a favourable decision in the Teinver v. Argentina case. Earlier in 2017, Burford also secured $106m after selling 25% of its interest in an ongoing case in which the Argentinian government is accused of pushing investment firm Petersen into bankruptcy following its decision to nationalise an oil firm in which the latter had a stake.
Over the reporting period, Burford saw "strongdemand" for its capital with almost $488m committed to new investments. Its recent retail bond offering was also over-subscribed, raising £175m to support client demand and allow the company to continue growing. To cap things off, the acquisition and integration of Gerchen Keller Capital -- the rapidly growing law-focused investment manager -- appears to have gone without a hitch with the first investment fund already generating performance fees for its new owner.
By anyone's standards, today's numbers were staggeringly good.
Worth sticking with
Burford's growth over the years has been nothing short of exceptional. As Chairman Sir Peter Middleton reflected this morning, the company "has grown from a £80m startup to become the clear industry leader" in just eight years. Had you had the foresight or blind luck to invest in the AIM-listed firm at the end of 2009, you'd now be sitting on a ten-bagger.
Can this kind of performance continue? With at least one analyst already revising the target share price to 1,200p, it certainly looks the case. Indeed, I think patient investors would do well to stay the course.
Aside from today's remarkable set of results and still-fairly-reasonable valuation (17 times earnings), Burford also displays many of the hallmarks of an excellent company. Rising returns on capital? Check. High operating margins? Check. Market-leading status in a niche industry? Check again. Even though the company moved to a net debt position over the last year, the balance sheet still looks solid.
Although its focus on growth means that dividends are very small, these bi-annual payouts have also been growing at a cracking pace since 2012. Indeed, today's healthy 14% hike to the interim dividend shows just how confident management is on the company's future prospects.
My congratulations to those already invested. While nothing lasts forever and running winners is never easy, I'd be prepared for sit on my hands for some time to come.
Financial independence need not be an impossible dream
Thanks to its multi-bagging status, I suspect some early investors in Burford Capital are well on their way to being able to contemplate early retirement.
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Paul Summers has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.