Burford figures expected to fall after nightmare year
3 February 2020, 10:34
The financier was blasted by Muddy Waters in August last year.
The litigation funder at the centre of a battle with short seller Muddy Waters has warned profit will be lower in 2019 than a year before.
In a trading update, Burford Capital said that net realised gains and unrealised gains will fall below 2018 levels.
This “will have an impact on net income and profit for 2019,” the business said. But it stressed that “Burford’s policy is to manage litigation outcomes for optimal shareholder value rather than to its financial year end”.
Burford’s business model is to finance litigation cases and then take a cut of any winnings. The cut it takes, minus legal costs, is net realised gains. Net unrealised gains, meanwhile, are based on movements to what it expects to make from an investment.
The financier said it has already seen strong results in 2020, adding: “Had January’s events occurred in December, Burford’s 2019 results would have been materially higher.”
Meanwhile, new commitments hit 1.6 billion dollars (£1.2 billion), a 24% increase, and an all-time record. Cash proceeds rose 23% to nearly one billion dollars (£760 million).
It caps an upsetting year for Burford investors, but a strong performance for those who had bet against the company.
In August Muddy Waters revealed it had taken a bet against Burford and launched a broadside against the company.
The short seller claimed Burford is a “poor business masquerading as a great one”, halving the value of its shares.
Although the stock value has regained some of its losses, the 619.5p share price is considerably below the approximately 1,400p it was trading for before Muddy Waters’ attack.
On Monday the shares lost 11p, or 1.75%.
Despite dismissing Muddy Waters’ report, Burford later removed its finance director Elizabeth O’Connell, who is married to chief executive Christopher Bogart.
However Muddy Waters founder Carson Block dismissed the notion that new chief financial officer Jim Kilman “will substantially improve governance” as “a farce”.
“We note Mr Kilman was Burford’s principal investment banker at Morgan Stanley,” he said.
“Burford investors would be much better served by a CFO from the outside who is untainted by Burford’s conduct to date.”