Burford H1 22 Results: Duration and Cash Income Reconciliation

BUR H1 22 Results & Case Duration

Last week, BUR reported H1 22 results. The most important takeaway is that the company is cash break-even and tangible book value per share (TBVPS) didn’t change.

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This is mainly because cash realizations were slow; BUR is still seeing delays in case progression due to the backlog in courts from COVID. We recently discussed in more detail about BUR's lack of TBVPS growth over the last few years.

Although BUR-only commitments grew 4% YoY to $295m, a H1 record, deployments were down YoY to $128m. If we exclude the huge $138m deployment in H1 21 with the BOFC sidecar, ‘normal’ sized capital provision deployments actually grew in H1 22. However, we believe such outsized deals are now a regular part of BUR’s business and should be included in any YoY comparison.

Both deployment and realisations are slow. But management have always warned investors of this: they don’t know how or when cases will realise. And they likely won’t ever truly know. Because if they did, the beauty of capital markets would mean BUR wouldn’t be able to earn the underlying case ROI that it does today. BUR CEO warned us of this on the earnings call:

There are too many idiosyncratic variables in the mix beyond just understanding generally how long it takes for cases to get through courts. And so, it is not something that we believe that we can do with the kind of accuracy and reliability that we would be comfortable doing publicly. I would say, would that we could. But on the other hand, if this business were entirely predictable as to both duration and outcome, then we would not be able to generate the returns that we can, I think, is the countervailing factor. - Burford Capital CEO, H1 22 Earnings

In fact, even if BUR did understand the duration of cases, would it be wise to communicate this publicly? Competitors could better assess the risk of litigation assets and arbitrage BUR’s return. Investors would also plug the duration into DCF’s so precisely that BUR would become closer to a bank than a specialty litigation financier.