Shares in Burford Capital fell a further six per cent today as analysts at broker Canaccord Genuity unleashed a fresh barrage of criticism at the embattled litigation funder.
Burford Capital’s shares lost 40 per cent of their value earlier this month after shortseller Muddy Waters blasted its accounting practices and governance.
Analysts at Canaccord first questioned the former Aim-darling’s business model in an April note which queried its figures for return on investment capital and its use of unrealised gains in its profit-before tax numbers.
Today, Canaccord slashed its target price for Burford to 570p from 1,240p and cut its cash-adjusted profit-before-tax estimates by 50 per cent-to-60 per cent in financial year 2019-21.
Today Burford’s shares closed down 6.3 per cent at 686p.
At the end of July Burford’s shares were trading at 1,504p.
After scrutinising Burford’s recent first-half financial results, Canaccord’s analysts said there were risks Burford would not have sufficient cash flow to meet funding commitments.
They said if its current trend of realisations continued Burford could face a cash deficit in financial years 2020 and 2021.
If that scenario arose Burford would be forced to “curtail new lending or raise external capital,” they said.
The analysts said Burford had a “modest return profile” with their forecasts suggesting mid-term cash return on equity of 14 per cent.
“In our view, the expected returns simply don’t justify the current valuation”, they said.
Canaccord remains an outlier among the analysts tracking Burford with eight of the nine covering the stock giving it a “buy” rating.
In a note last week, Jefferies said its positive opinion on Burford is unchanged.
“Burford is still the long-term leader in a large, under-penetrated market offering attractive, uncorrelated returns. We think the company reports returns statistics accurately & have no concerns about its liquidity,” it said.
Burford declined to comment.