Neil Woodford may be better known for his acumen in picking income stocks, but sprinkled throughout his various funds are a handful of growth stocks that look interesting to me. The first of these is Burford Capital (LSE: BUR), whose stock has already risen over 125% in value in the past year but still looks attractively priced.
Burford is a pretty unique business that funds litigation battles, which can drag on for years and cost many millions of dollars, in return for a chunk of the proceeds should its client win any damages. This business has proven a hit with clients across the world and its managers have proven adept at wisely investing their capital.
In the six months to June the company’s income rose from $76.2m to $175.5m year-on-year (y/y) while post-tax profits nearly tripled to $142.7m. A large portion of this astronomical increase in income and profit came from a single case against Argentina following the nationalisation of energy company YPF in 2012.
To date, Burford has invested $18m in pursuing these claims on behalf of foreign investors and has already more than recouped this through the sale of 25% of its stake for a total of $106m. And the best news is that the latest sale valued its investment at some $440m, of which it still owns a 75% stake.
And this claim is far from a one-off as the company has a positive record in many other cases and claimed 11 successful investments in H1 alone. It’s also diversifying its investments away from simple single case litigation financing into funding a portfolio of claims, financing cases where it has recourse to underlying assets should a judgement go against it. And it’s providing legal risk management where it only pays out should a claim go against its client.
Branching out into these new business lines is allowing Burford to make more investments, a record $289m was deployed in H1, and lowers overall risk. With its shares priced at just 14 times forward earnings and plenty of investments being made to fuel future growth, I believe Burford is definitely worth a closer look for growth-hungry investors.
A more familiar business
A much different Woodford holding I have my eye on is Hostelworld (LSE: HSW). While I may have aged out of Hostel World’s target audience, it was definitely my first port of call when travelling on a budget in my younger days.
Evidently this still holds true for younger generations as bookings in H1 were up 11% y/y while an increase in average booking size led to revenue rising 17% in constant currency terms to €46.6m. Meanwhile, management’s renewed focus on the highly profitable core Hostelworld platform paid off with a 21% increase in its bookings and a 30% increase in group constant currency adjusted EBITDA to €12.9m.
Looking ahead, there is still plenty of growth potential as mobile bookings still only represent half of total bookings and the group invests heavily in expanding its brand awareness with its target audience via ads on Snapchat and the like. The company’s high margins also allow it to pay out a growing dividend that currently yields 4.1%. With growth potential and a nice yield, I think Hostelworld is still an interesting option even with its shares priced at 19 times forward earnings.