Burford Capital Limited (LSE:BUR) is a unique player among the AIM set, being a provider of litigation finance with a side of risk management and asset recovery.
When a legal financing company provides funding, it takes on the risk of the lawsuit and provides the funds needed to pay for legal fees and other expenses associated with the case.
If the plaintiff wins the case and receives a settlement or award, the legal financing company is entitled to a portion of the amount recovered.
Clearly, when there are no claims being processed, as was the case in pandemic times, Burford’s cash flows are severely compromised.
But 2022 saw a strong rebound for Burford, with cash receipts increasing 33% to US$350mln (£288mln).
Furthermore, more than 30 trials and final merits hearings are scheduled for 2023, which is nearly three times the number of hearings in 2022.
So why did Burford drop 20% lower following this trading update?
It’s less an issue of group performance and more an issue of accounting practices, which sounds exceptionally boring, but the stakes are evidently high.
Burford is at loggerheads with the US Securities and Exchange Commission (SEC) over what constitutes a fair valuation methodology (Burford is dual listed on AIM in London and the New York Stock Exchange).
Per Burford’s trading update: “In connection with implementing our new fair value methodology, we may be required to recast or restate our historical financial statements and/or disclose a material weakness in our internal controls in connection with these changes.”
Investors might have taken this as a warning sign that Burford isn’t quite as valuable as it seems, and repriced accordingly.
At the time of writing, Burford’s shares had recovered somewhat, bouncing off Thursday lows of 502p, returning to 571.5p.
AIM has a tough week
In a week of widespread market turmoil, there were bound to be some losers among the small-cap set, many of which ended up being natural resources companies.
South Africa-focused metallurgical coal assets developer MC Mining Ltd ended the week 16% lower at 8.4p, with most losses felt on Thursday after releasing its latest interim report.
Although the group’s losses per share narrowed (albeit only slightly from 0.54 US cents to 0.5 US cents), much of the report was centred around the need for additional funding, which could take the form of debt or equity rounds.
Metal Tiger PLC (AIM:MTR, OTC:MRTTF, ASX:MTR) fell 17% to 7.64p, though that was more to do with its upcoming AIM delisting, a decision chief executive Michael McNeilly said was “not taken lightly”.
Metal Tiger will continue trading on the Australian Stock Exchange, where existing shareholders will receive a one-to-one- share swap.
The Gym Group PLC (LSE:GYM) suffered a 25% hit to its share price across the week after warning that rising costs would offset improvements in full-year revenues.
In a statement alongside results for the 12 months to December 31, 2022, the no-contract gym operator said it expects the current difficult macroeconomic environment and its impact on consumer demand to continue throughout the year.
Fitness, it seems, is on the cost-of-living chopping block, though gym bunnies could also be taking advantage of the warmer weather hopefully on the horizon.
Virgin Wines UK shares dropped 12% on Tuesday morning after investors detected notes of tough trading conditions for the group in its latest interim report.
Profit before tax for the direct-to-consumer wine retailer fell to £100,000 in the six months to end-December, down 97% from £3.2mln a year earlier, as revenue fell 17%.
In brighter news on the AIM market, clean energy group Verditek PLC (AIM:VDTK) surged over 30% on Friday after announcing an exclusive three-year supply agreement with Lindab Profil for the provision of solar panels.
In a different sector entirely, Blue Star Capital PLC (AIM:BLU) rounded the week off 33% higher after Pendulum, a company incubated by Blue Star's investee company SatoshiPay, announced the launch of a blockchain protocol for bridging the popular Polkadot and Stellar blockchains.
Speaking of blockchains, Quantum Blockchain plc added 23% throughout the week, as investors were encouraged by a litigation win for its subsidiary Clear Leisure.
Aquis-listed 4imprint Group Plc (AQSE:FOUR) was also in demand as the direct marketing products specialist announced a special dividend after a strong year.
The AIM All-Share Index was down nearly 3% to 813.27 as of midday Friday, better than the FTSE 100, which fell over 4%.