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By any measure, Burford Capital Ltd. is an investor darling.
Every fund that owns shares in the litigation-finance company holds it in a higher percentage than the company’s weighting in a benchmark stock index, according to research from Bank of America Corp. investment strategists. Burford, listed on the London Stock Exchange, is the only stock in Europe that’s an overweight for every fund holding it, the firm’s research shows.
With a market value of 3.8 billion pounds ($5 billion), Burford is the biggest stock on the U.K.’s AIM market for smaller companies, having soared 1,500 percent over the past five years. Even after such phenomenal price gains, all but one of eight analysts tracked by Bloomberg recommends buying the stock.
The company is a giant in a growing field in which investors provide cash to law firms or plaintiffs to finance a lawsuit, in exchange for a cut of any resulting monetary awards. The bull case: Here’s a company with a moat, in a still-nascent industry with high returns.
“Burford is the clear leader in the industry,” said Julian Cane, director of U.K. equities at BMO Global Asset Management, which owns the stock. “One of the key skills of Burford’s team is being able to assess which legal cases are worth pursuing. It is highly selective in the number of litigation cases that it finances, and it is this that has generated the very high returns.”
It’s not just fund managers who are betting on Burford. In December, the company announced it has received funding from, among others, an unnamed sovereign wealth fund for $1.6 billion of new investments. Christopher Bogart, a former general counsel of Time Warner, and Jonathan Molot of Georgetown University Law Center founded New York-based Burford in 2009.
Of course, every crowded position has its skeptics. While the industry is growing, the stock is overvalued, said Portia Patel, an analyst at Canaccord Genuity and the sole sell-side bear. Diversification into different types of litigation funding structures is likely to drive return on equity lower and further capital raises may be coming, she said.
Paul Smith of Premier Funds has also taken “significant profits” on the stock. Diversification may expose the company to new risks, he says, though he adds that he still has much respect for it.
The stock is trading at 15.1 times trailing earnings, below a ratio of 23.2 for the FTSE 250 Index. The share price slipped 0.8 percent to 1,746 pence at 10:22 a.m. in London.
A Burford spokesman declined to comment.
The Bank of America report covers 1,128 European funds overseeing a total of $8.3 trillion. The funds that owned Burford had on average an approximately 1.5 percent overweight on the stock.
(Updates chart and valuation multiples in ninth paragraph.)
--With assistance from Sam Unsted and Joe Easton.
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