Burford Capital’s share price fell as much as 9% on Thursday after the litigation finance company reported a record first half for profit and commitments to invest in new lawsuits but a research firm questioned its cash balance.
Burford said its adjusted pretax profit rose 41% from the prior first-half period to $231 million as its total assets rose 37% to $2.3 billion. Its core litigation finance business—investing in standalone disputes and portfolios of lawsuits—allocated $381 million to new investments in the first half of the year. That was up 47% from the prior year period, and driven in large part by a new agreement to finance $130 million of an unnamed company’s portfolio of cases.
The amount Burford actually spent in the period to back new investments grew at a more tepid 8% to $448 million. That figure includes business lines outside of core litigation finance such as asset recovery, post-settlement financing and legal risk management.
Research and fund management firm Shadowfall said in a Tweet it has a short position in Burford due to its belief that “Burford has a pretty strong inverse relationship between its profitability and cash flow.”
Burford CEO Chris Bogart in an interview said that criticism was “a little naïve” when applied to a fast-growing business that relies on investing its capital. He said Burford had used debt and capital fundraising to fuel its growth because of the long-term nature of investing in lawsuits.
“There are two choices: To grow much more slowly, in which case we are generating enough cash” to cover new investments, Bogart said. “And the other is to grow more quickly, in which case we need to rely on the availability of external capital as well. And that has always been our approach.”
Bogart attributed the share-price dip to investors taking profits on the firm’s good news. While the shares have risen to nearly 17 times its 2009 IPO level, they have fallen roughly 5% year-to-date, lagging the broader market.
More broadly, Bogart said Burford’s first-half results showed “considerable” growth in the business driven by “the growing ubiquity of capital” in the legal industry. Burford will celebrate its 10th anniversary in October.
“We have gone from this being an esoteric, remarkable thing to being business as usual,” Bogart said. “It’s that concept of this being business as usual that drives a fair bit of our growth.”
David Perla, a Burford managing director, is a former president of Bloomberg Law.