Shares in Burford Capital rose 20 per cent today as it predicted a spike in litigation in the aftermath of the coronavirus pandemic.
In its annual report, Burford said: “Economic downturns produce litigation claims… [Burford] expects to see significant amounts of litigation, and meaningful demands for capital, over the next several years.”
Burford also said today it had achieved litigation successes in the first four months of the year that could lead to more than $800m (£639m) in cash receipts for the group.
Shares rose to 491p despite the litigation funder saying today that profit before tax for 2019 fell 24 per cent to $239.6m.
Burford said the awards it had achieved in 2020 so far could lead to more than $500m in profit for the group.
Burford chief executive Christopher Bogart told City A.M.: “The unfortunate reality…is this pandemic is going to generate an enormous number of disputes.”
Bogart pointed to areas such as insurance coverage and contractual obligation disputes as likely areas of growth, in addition to work flowing from the global economic downturn.
“Insolvency and restructuring activity also yields a substantial amount of litigation and arbitration… our anticipation is that over the next few years we will see a significant demand for capital,” he said.
In a note to clients, broker Peel Hunt said: “Our core concern is that cash generation has been slow. Announcements today suggest that might be allayed, and that Burford is on the cusp of delivering big cash wins. We prefer to wait.”
In August, Burford was blasted by shortseller Muddy Waters which questioned its accounting and governance standards and sent its share price into freefall.
Burford maintained that it was the victim of market manipulation in connection to the short attack which its chair Sir Peter Middleton described as “meritless”.
Bogart described 2019 as a “spectacular year” for the business, despite its share price crashing 55 per cent from 1,602p at the end of 2018 to 708p at the end of 2019.
“It was not a tremendous year for shareholders.” he said. “The performance of the stock became disconnected from the performance of the business because shareholders reacted to a false and misleading short attack and because we believe that there was market manipulation that accompanied that short attack.”
He added: “We don’t believe the value of the shares should have gone down, but that doesn’t change the fact they went down and that shareholders have been injured.”
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Although Burford said it saw no merits in Muddy Waters’ criticism, the company has shaken up its governance structure and made changes which it said would increase transparency in the wake of the attack.
Aim-listed Burford is seeking an additional listing in the US and has also added new members to its board. It has also appointed a new chief financial officer after criticism that the previous finance chief – Elizabeth O’Connell who is married to Bogart – lacked the independence to properly scrutinise management.
Bogart said the short attack had increased shareholder concerns and meant it had to make changes quickly to allay investor worries.
“The acceleration of shareholder anxiety came in response to a sharp fall in the share price. It wasn’t that we or shareholders were complacent or coasting along, the business had been evolving every year,” he said.