Listed litigation funder Burford Capital posted an upbeat trading forecast today despite reporting a sharp slump in profits. In the year ending 31 December pre-tax profits fell 24% to $239.7m (£191.8m) on income down 15% to $356.7m (£285.4m).
The figures are the first annual results to be published since a stinging report by an activist short seller Muddy Waters caused shares on the alternative investment market to slump last August. In a statement to investors, chairman Sir Peter Middleton admitted that the 'meritless short attack' had 'dented' investment confidence and prompted governance changes.
Burford's woes prompted questions about the fast-growing market in third-party funding, in particular whether funders were prematurely recognising court and arbitration awards in their accounts. Today's statement admits that: 'Risk remains in litigation until matters actually pay cash, and it is always possible that the anticipated income... will be reduced by further court action, prepayment discounts or by agreement between the parties.'
However the statement reports that Burford generated more than $1bn in cash in 2019, amounting to more than four times operating expenses and finance costs. Unrealised gains as a share of total income decreased from 57% to 52%.
Christopher Bogart, chief executive, said: 'Burford had a spectacular year, and 2020 is off to a terrific start. We are the market leader in a rapidly growing industry with high and uncorrelated returns, and we expect meaningful demand for our services in light of the current economic disruption.
'Much as we share the world’s distress at our current health crisis, the reality is that we expect its aftermath to be a time of significant demand for our services and a moment when uncorrelated cash flows are especially attractive.'
Burford shares rose 27% this morning to 517.8p, well off the peak of 1,755p a year ago.