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Burford Capital Limited

Burford Capital shares worth more than double current levels, says Berenberg

“While Burford is making changes and responding to the criticisms, it may have to provide yet more detail about specific investments to dispel any doubts”

Burford Capital Limited - Muddy Waters founder Carson Block
Muddy Waters founder Carson Block, right

Shares in Burford Capital Ltd (LON:BUR) are worth two and a half times their current price, analysts at Berenberg said as part of an examination of the criticisms levelled by short-seller Muddy Waters earlier this month.   

San Francisco-based hedge fund Muddy Waters has accused the AIM-listed litigation finance specialist of “Enron-esque mark-to-model accounting”, “egregiously misrepresenting” its returns and of dubious corporate governance standards. 

Burford’s shares lost around two thirds of their value in short order, though they have rallied from their lowest point as the company published several public responses to the criticism and passed its own allegations to US authorities. 

The allegations, Berenberg noted, focused on whether non-audited alternative performance measures such as return on invested capital (ROIC) and internal rate of return (IRR) were manipulated to appear more favourable

“Burford has addressed each of these points and, on first read, its responses seem credible, which is absolutely critical for restoring confidence.” 

Secondly, on criticisms about liquidity or solvency, Berenberg said Burford’s cash position of around US$400m “suggests concerns in this area are unfounded”.

On corporate governance, the Berenberg analysts noted that Burford has begun the process of looking to list on a US exchange and, if not possible, it will instead pursue a premium, main-market listing in the UK. 

Burford has since moved finance director Elizabeth O’Connell, wife of chief executive Chris Bogart, to the role of chief strategy officer and said it was looking to add two new independent directors to the board as soon as possible.

“While Burford is making changes and responding to the criticisms, it may have to provide yet more detail about specific investments to dispel any doubts,” the analysts said, adding that “there are a particularly wide range of scenarios that could play out”.

Daily fluctuations in sentiment and newsflow make valuing the business “exceptionally challenging at the moment”, but Berenberg’s target price remained at 2,070p, compared to the shares that last closed at 790.5p. 

“For all the noise, if Burford can regain market confidence and demonstrate that it has built a diversified business of litigation assets, then, over time, it will generate cash and yield good returns…In time, we expect analysts and investors to focus on tangible data points relating to capital deployed and sustainable levels of returns.”

Burford shares were up 1.3% to 801p on Tuesday afternoon.

Quick facts: Burford Capital Limited

Price: £7.89

Market: LSE
Market Cap: £1.73 billion
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