AIM-listed litigation financing group Burford Capital (LSE: BUR) is one of the whizziest growth stocks around, yet it wasn’t on my radar until recently. Maybe it was simply too fast, because it’s grown an incredible 1,474% in the past five years. This means it would have turned £10,000 into £157,400, if you’d caught it at the right time. Is it too late to invest today?
Big money
Burford’s stock is up another 8% today after full-year 2018 results revealed a 23% increase in operating profit to $354m, with operating margins of 84%. The group is also generating plenty of cash, up 42% to $513m.
Return on equity fell from 37% to 30%, but that was partly due to a new share issue in 2018, and a 71% increase in net assets to $1.4bn. The group also proposed a 14% increase in its annual dividend to give a total of 12.5 cents per share.
Legal eagle
CEO Christopher Bogart said the big question was whether 2017’s “explosive growth” was a one-time anomaly… “These results show that it was not,” he said. Burford has committed $2.6bn to new investments in just two years, more than twice its lifetime cumulative commitment, which “is extraordinary and suggests a sea change has occurred in the legal finance marketplace.”
The fast-growing company is approaching its 10th anniversary and its large capital base should help drive future growth. It needs to keep securing new lines of funding to invest in lengthy legal cases. But that isn’t a problem right now, with new investment commitments of $1.3bn in 2018. The group also has an investment management division and here assets jumped from $1.7bn to $2.5bn.
You cannot expect more double-digit multi-bagging from a business that now has a market-cap of £4.27bn. However, a forward valuation of 16.7 times earnings looks reasonable given recent growth and the momentum is still there, with the stock up 65% in the last year alone. Earnings forecasts look good with 10% growth expected this year, and 34% in 2020. So no, I don’t think it’s too late to invest.
Asia play
FTSE 100-listed insurance giant Prudential (LSE: PRU) also issued its 2018 results to date including a 6% rise in group operating profits to £4.8bn at constant exchange rates (3% actual).
Again, Asia is driving the growth, with Asia EEV new business profit up 14% to £2.6bn. US fee income rose 8%, while M&G Prudential’s operating profit jumped 19%, including the effect of updated longevity assumptions. Management is continuing plans for its demerger.
I sold my stake in the Pru a couple of years ago and don’t regret that, with the stock down 17% in the last year. Over five years, growth totals just 10%. The group has been hailed for its shift into Asia but is paying the price as that continent slows. However, I think it’s starting to look attractive again, trading at just 9.7 times forward earnings.
Recovery position
Today management hiked the full-year ordinary dividend 5% to 49.35p. It currently offers a forecast yield of 3.6%, with cover of 2.8. The business is solid, with an estimated group solvency II surplus of £17.2bn, equivalent to cover of 232%.
The £40bn company’s stock was unmoved by today’s results but earnings forecast of 10% growth next year and 11% in 2020 seem promising. It looks a good long-term buy at today’s low valuation and should benefit when Asia starts to recover. Royston Wild reckons it’s a white-hot buy.
