Despite an upbeat assessment of its 2021 business activity, shares in litigation finance provider Burford Capital (BUR:AIM) drifted 1% lower to 685p as investors focused instead on projected losses due to slow case progress.
On the other hand, smaller rival RBG Holdings (RBGP:AIM) received plaudits for its new model of risk-sharing in financing cases as its shares gained 4.3% to 130p.
STRONG YEAR FOR BURFORD
By its own reckoning, Burford had ‘a strong year for new business’ with $1.1 billion of new commitments and $841 million of capital deployed, an increase of 48% in terms of commitments and 41% in terms of new investments.
The surge in commitments was driven by growth in the firm’s own capital provision-direct commitments which rose to $602 million from $335 million in 2020 and $530 million in 2019.
Burford-only capital provision-direct deployments more than doubled to $447 million, also well ahead of 2019 and 2020’s investments, which means there should be a strong pipeline of returns for the 2021 ‘vintage’.
FEWER CASES SETTLED
However, realisations were ‘modest’ due in part to continuing court delays as a result of the pandemic, which affected the pace and progression of cases in the portfolio.
As the firm explained, given the unpredictability of the timing of case resolutions investors have to expect volatility in its business. Despite this, returns on invested capital in both the first and second half were in line with the firm’s 93% long term average over its total of $1.9 billion of realisations.
Given the slow case progress last year, full year net losses are expected to be between $70 million and $80 million, although this is simply a matter of timing due to the length of cases and ‘the vagaries of the litigation process’.
NEW MODEL FOR RBG
There was a better reception for rival legal services group RBG Holding after it announced its LionFish subsidiary had agreed a £20 million litigation investment with a large alternative investment firm.
The outside firm will invest up to 75% in each of LionFish’s cases over a two-year period, with LionFish taking ‘a significant share of the returns’ above a high single-digit return hurdle.
As well as ‘gearing up’ LionFish’s portfolio to turbo-charge returns, the deal moves RBG away from selling participation rights in cases to outside investors while remaining consistent with chief executive Nicola Foulston’s aim of spreading the firm’s risk.
