AIM-listed Burford Capital (LSE: BUR) — a market leader in the niche legal finance industry — released a superb full-year report to the market this morning, causing the share price to soar almost 30% in early trading. Here’s why investors are clamoring for the stock.
“Explosion of demand”
It’s hard not to be impressed by the numbers. Chalking up its eighth consecutive year of growth, income at the mid-cap more than doubled to $341.2m, thanks to a 127% rise in income from cases. Net profit after tax jumped 130% to just under £265m while return on equity (how much profit Burford makes with each pound of shareholders’ equity) climbed to 37.4% compared to £21.1m in 2016.
Commenting on today’s figures, CEO Christopher Bogart reflected that the company had seen an “explosion of demand” for the company’s capital, resulting in new commitments of $1.34bn. Now boasting a “widely diversified portfolio“, Burford has $3.3bn invested (and available for investment) and $1.7bn in assets under management.
Looking ahead, 2018 looks like being another strong year. In sharp contrast to the minuscule $1m employed over the first two months of the previous year, the company has already committed $128.5m to 12 new investments so far. In addition to this, Burford revealed yesterday that it had sold its Teinver investment for $107m in cash — realising a $94.2m gain and a stonking 736% return on capital.
Clearly, any company performing as well as this is likely to become increasingly expensive for investors to acquire going forward. That said, I’d be tempted to wait for the inevitable period of profit-taking to pass before taking a position.
As a stock to buy and hold for the long term, however, Burford continues to look like a great option.
Another company that’s been over-achieving recently is £515m-cap Craneware (LSE: CRW).
Shares in the business — which produces software for the fast-evolving US healthcare market — have soared 63% over the last year alone. Interim results, released earlier this month, go some way to explaining why.
In the six months to the end of December, and thanks to a “supportive market environment“, revenue increased by 16% to just over $31m, with pre-tax profit rising by the same percentage to $8.7m.
Craneware secured two “significant” contracts over the second half of 2017, with a third announced after the end of the reporting period.
According to the company, recent investment means it is now growing at a faster rate than the industry as a whole, with the recent launch of its Trisus cloud-based platform likely to act as a catalyst for further growth.
Thanks to a “record sales pipeline” — with total visible revenue of over $63.1m and just under $180m to June 2020 — Craneware’s management said it has entered the second half of the financial year with “great confidence for the future“.
The bad news? It should come as no surprise that the cash-rich firm is looking fully valued right now, with stock changing hands for an eye-popping 49 times forecast earnings. As to be expected with high growth companies, there’s also little in the way of dividends, even if recent double-digit hikes are encouraging.
For these reasons, I’d be tempted to keep this company on my watchlist for now in the hope that another general market wobble may provide a better entry point.