The reason for the extraordinary slump was the publication of a scathing report on the company by renowned short-seller Muddy Waters. Burford has since fought back with a series of return volleys, the latest released this morning, and sent its shares as much as 7% higher in early trading.

There’s further upside potential of 75% if the shares were to get back to their pre-short-attack level. Do I think it’s time to snap up the stock?

Attack and defence

The Muddy Waters short dossier on BUR had a number of planks. Its key claims were:

• “Enron-esque mark-to-model accounting… aggressively marking cases in order to generate non-cash fair value gains”

• “Net realized returns have relied on a very small number of cases”

• “Liquidity is risky, and it is arguably insolvent”

• “Governance strictures are laughter-inducing”

Burford has responded with counter-statements, a conference call with investors and analysts, and by taking action on governance. We’ve also seen one of BUR’s institutional investors, Caro-Kann Capital, publish a point-by-point rebuttal in an extensive report titled ‘Muddy Waters Dreams of a Black Cat That Just Is Not There’.

Favourable impression

Overall, I think Burford and its ally have done a decent job of addressing the areas of legitimate criticism/questioning in the Muddy Waters report, as well as exposing a number of factual inaccuracies in it.

Today’s publication from BUR – titled ‘Briefing on Fair Value and Return Computations’ — adds to my favourable impression. And, as already mentioned, the market has responded positively.

The investment case for the company is that it’s the market leader in a growth industry, where returns are uncorrelated with the performance of the wider economy. This is clearly an attractive set of attributes for investors. What’s less clear to me is how to assign a value to the company.

Valuation matters

At a current share price of 850p, BUR’s market capitalisation is £1.86bn. Net assets at the last balance sheet date of 30 June were $1.57bn (£1.26bn at current exchange rates) and the company’s trailing 12-month profit after tax was $388m (£273m).

We’re looking at a valuation of 1.5 times book and 6.8 times profit. The former (an asset valuation) would be appropriate for an investment company, such as a real estate investment trust. The latter (an earnings multiple) would be appropriate for an operating business.

For an investment company, 1.5 times book value would be pricey, but for an operating business 6.8 times profit would be cheap. The problem is I think Burford falls somewhere between the two stools, making it difficult for me to decide whether the current share price represents good, fair, or poor value.

I don’t go along with the line of thinking that “the share price has fallen a lot, so it must be cheap.” I want to be confident I have a good idea of the intrinsic value of a company before I invest. Unfortunately, in Burford’s case, I don’t. It’s just the way it is sometimes.

The post Is Burford Capital share price set to recover from Muddy Waters’ short attack? appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

The volatility has continued today, with Burford releasing a statement, outlining what it claims is “evidence of market manipulation in Burford shares.” The share price moved as high as 916p in early deals, before dropping as low as 741p within two hours. It looks like it could be another extraordinary week. Could this be an opportunity to buy one of London’s hottest growth stocks?

Too hard

Burford listed on AIM in 2009 at 100p a share. The shares reached an all-time high of 2,045p (giving it a market capitalisation of £4.3bn) less than a year ago. Big growth stories like this tend to get a fair bit of coverage here at the Motley Fool, but in contrast to the likes of Boohoo and Fevertree, which have been written about many times and by many of our writers, only a few of us have ever felt the urge to pen articles on Burford.

I’ve never covered the stock before. I’ve looked at it from time to time, and it’s always gone back on my ‘too hard’ pile. These are companies where I’m not sufficiently confident in my understanding of the accounts and/or how to value the business to consider buying the stock. Equally, while they may have one or two characteristics that I consider potential ‘red flags’, they’re insufficient in number to give me a strong conviction the stock should be avoided.

Has the Muddy Waters report or Burford’s rebuttal clarified matters one way or the other, or does the company go back on my ‘too hard’ pile?

Management promise

One of the central difficulties with understanding Burford’s accounts is that part of its revenue at any one time, comes from writing up the value of disputed court cases that haven’t yet concluded. The company says it employs accounting standards that are “used widely across the financial services industry.”

However, in the wake of the Muddy Waters attack, other litigation funders have been vocal in their implied criticism of Burford’s accounting. Australia’s IMF Bentham said it carries its claims at cost throughout and “does not record any unrealised gains.” Likewise, London-listed Litigation Capital Management told the Financial Times, “there is no fair value accounting in our numbers.” Meanwhile, Institutional Investor reported: “The firm uses different accounting procedures than most in the industry, according to [US litigation finance consultant] Charles Agee, who said Burford is unique in its approaching (sic) to accounting and asset valuation.”

I was partly, but not wholly, satisfied by Burford’s explanation of its business, accounting and corporate governance in its written response to the Muddy Waters report and on a subsequent two-hour conference call. However, a theme on the call — even among City analysts supportive of the company — was a plea for further disclosure and transparency in its financial reports.

Management has promised to take on board the concerns and suggestions of analysts and investors. I would welcome that, but for the moment Burford has to go back on my ‘too hard’ pile.

The post The Burford Capital share price is under attack. Here’s what I’m doing appeared first on The Twelfth Magpie.

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G A Chester has no position in any of the shares mentioned. The Motley Fool UK has recommended boohoo group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

If you haven’t done so already, I urge you to read my Foolish colleague Rupert Hargreaves’s summary of the company’s current situation after coming under scrutiny from US investigative research firm Muddy Waters.  

Unfortunately, Burford’s decision to issue a statement designed to counter the latter’s claims that its investment returns were misleading has backfired. The share price declined 54% yesterday as investors fled for the exits and traders joined Muddy in betting against the company.

But Burford isn’t the only Woodford holding that’s been a target for short-sellers. Another has been breakdown recovery provider and insurer AA (LSE: AA) — currently the joint second ‘most hated’ share on the London Stock Exchange.

Road to recovery

Releasing a pre-close trading update to the market this morning, AA predicted that earnings over the six-month period to the end of July will be “ahead of last year”, although FY2020 performance will still be weighted to the second half.

Positively, the company stated that its paid personal membership base was stabilising (falling roughly 0.5% compared to the 1.1% over the same period in 2018) and that it would start growing again in the next financial year. Elsewhere, AA’s Insurance arm was performing as predicted with its motor and home books growing by 10% and 1.3% respectively.

Looking ahead, the small-cap said that it’s on track to deliver full-year earnings growth in line with what the market is expecting and “strong” free cash flow of around £80m. 

Having declined over 80% in value over the last three years, AA’s shares can be picked up today for just 5 times forecast earnings. That might appear screamingly cheap in light of today’s numbers and recent developments (including a deal with Admiral to offer breakdown services to its customers), but I’m still wary.

Regardless of its ability to throw off cash, few would deny that the company’s net debt (£2.7bn at the end of the last financial year) is still nothing short of terrifying for a company only valued at £300m. Moreover, I’d want proof that recent, substantial investment is paying off and membership numbers are actually growing, especially as the competitive breakdown industry could become even more so in the event of an economic downturn as more of us hunt for bargain cover.

AA may be spluttering back to life but it remains firmly in my ‘avoid’ pile until there’s clear evidence of it moving into a higher gear. 

Too risky

Returning to Burford, it seems likely that the share will remain under pressure until the company has a) taken formal action against Muddy Waters, b) management has taken advantage of the share price collapse to top up their holdings, or c) both. The fact that the shares aren’t bouncing as one might reasonably expect following a huge fall and investors’ collective love for a bargain is an ominous sign.

Taking a contrarian stance when presented with all the facts is one thing, but I think there’s simply too much uncertainty at the current time for Burford to be considered anything more than a punt. And that’s not the Foolish way.

The post The Burford Capital share price isn’t the only Neil Woodford disaster stock I’m avoiding appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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.

The post Why I’d buy the Prudential share price and this amazing 15-bagger right now appeared first on The Twelfth Magpie.

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Harvey Jones has no position in any of the shares mentioned. The Motley Fool UK has recommended Prudential. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Both operate in sectors that appear to be unusually profitable. Although increased competition may be a risk in the future, these businesses are larger than most of their rivals. I believe this should give them good pricing power and economies of scale.

Verdict: more growth

Litigation financing group Burford Capital (LSE: BUR) bucked the market trend this morning with an 18% share price rise during early trading. This company finances legal cases for corporate clients and then collects a share of any damages.

This business model has proved very successful. The AIM-listed firm’s annual profits have risen from $17m in 2013 to $249m in 2017.

However, this growth has relied on a continual supply of new cash to invest in new legal cases, which can take several years to resolve. Today’s share price rise was prompted by news that the firm has secured $1.6bn of new funding on what appear to be very attractive terms.

It’s a complex picture, but the end result is that the company will provide 42% ($633m) of this new cash, but will receive 60% of all profits from the cases in which the cash is invested.

The right time to buy?

Burford’s track record suggests that its staff are skilled at selecting legal cases which can be won. I also think it’s reassuring that the firm’s two top executives, founders Christopher Bogart and Jonathan Molot, each have a shareholding of about 4%. Their interests should be well aligned with those of outside shareholders.

Analysts expect the firm’s earnings per share to rise by about 20% in 2019, putting the stock on a forecast price/earnings ratio of about 14. Although I’m concerned about the risk of boom and bust in this fast-growing sector, I think Burford could be a good long-term investment from current levels.

A potential bargain

Back in April, I rated internet price comparison firm Gocoompare.com Group (LSE: GOCO) as a potential long-term buy. The shares have since fallen heavily and now trade at a level that looks very cheap to me indeed.

The good news is that nothing much seems to have gone wrong. During the first half of the year, management chose to maximise the profitability of the business, rather than chasing growth. As a result, operating profit rose by 9.5% to £17.3m during the six-month period, even though revenue was flat at £75.8m.

This patient approach may have disappointed some investors, but I don’t see a problem with it. In my view, improving profit margins is just as useful as pursuing growth.

Director buying

Gocompare.com’s share price slide has attracted at least one insider buyer. Chief executive Matthew Crummack bought £50,000 worth of shares in November, at a price of 78p.

The share price at the time of writing is considerably lower, at just 67p. This values the stock at just 8.7 times forecast earnings for 2018, with a dividend yield of 2.7%.

In my view this is probably too cheap for a business with an operating profit margin of 22%. I rate Gocompare.com as a buy for income and growth.

The post Have £1k to invest? These investments could boost your retirement income appeared first on The Twelfth Magpie.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Particularly hard hit, however, were high-growth stocks listed on the Alternative Investment Market (AIM). Mixers supplier Fevertree Drinks (LSE: FEVR), fast-fashion king ASOS (LSE: ASC), and litigation specialist Burford Capital (LSE: BUR) all endured double-digits falls, despite recovering slightly on Friday.

Warren Buffett famously preaches the strategy of being ‘greedy when others are fearful’. With confidence likely to remain fragile, is it therefore time to pick up shares in these former market darlings?

Still pricey

Go back one month and shares in Fevertree Drinks were trading as high as 4,000p each. In only a few weeks, the very same stock has tanked 27%, even after taking into account yesterday’s relatively minor rally. That’s got to be a rather bitter pill for holders to swallow, particularly those who took part in August’s placing at 3,450p a pop.

Clearly, this dramatic drop shouldn’t be regarded as a sign that Fevertree has run into trouble trading-wise. The business revealed revenue growth of 45% for the first six months of 2018, coupled with a 35% increase in adjusted EBITDA.

Trouble is, Fevertree’s valuation still looks demanding despite its recent spanking. On a forecast price-to-earnings (P/E) ratio of 57 yesterday, it’s still a screamingly expensive share to consider purchasing. 

It’s a similar story over at £4bn-cap ASOS, with the online giant trading on 40 times earnings for the 2018/19 financial year (which began at the start of September), despite being 24% cheaper to acquire than it was a week ago. Then again, its record of stellar growth means the company’s stock has rarely been on sale. 

Nor is this the first time the stock has fallen heavily. Back in 2014, its price went from just over 7,000p to a low of 1,870p in just eight months — another reminder of how backing popular growth companies can often backfire when they are priced to perfection.

While hindsight is no doubt useful here, the fact that it recovered over the years should at least give comfort to those still holding.

Of this trio of falling stars, however, Burford Capital is probably the only one whose valuation seems anywhere near attractive at the current time.

Down roughly 18% from the start of October, a P/E of 19 is a world away from the prices attached to Fevertree and ASOS. A PEG ratio of less than 1 also implies that new owners would be getting a lot of bang for their buck. The equivalent ratios for Fevertree and ASOS are 3.06 and 1.73, respectively, based on analyst forecasts. The lower this number is, the less investors are paying for growth.

A market leader in its industry, Burford continues to grow the returns it generates on the capital it invests. Debt, while rising, is still reasonable. 

Buyer beware

No one can say for sure whether Friday’s bounce was an indication that the recent rout is now over. The expectations of more interest rate rises in the US (which would heap more pressure on businesses and consumers) could mean that global equities may continue to struggle going forward.  

As always, the Foolish philosophy hasn’t changed. Buy great companies for the long term, don’t over-pay, re-invest any dividends, stay diversified, and try not to meddle. Easier said than done, of course.  

The post AIM has been clobbered. Are these former market darlings now unmissable bargains? appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK owns shares of and has recommended ASOS. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Today, I’m looking at the top two holdings in Woodford’s Equity Income fund. Are these stocks worth buying for your own portfolio?

Imperial Brands

The largest holding in Woodford’s flagship £6bn fund is tobacco manufacturer Imperial Brands (LSE: IMB). At 30 June, the stock had an 8.9% weighting in the fund according to the Woodford Investment Management website, which is certainly a large position. Clearly, the portfolio manager sees considerable value in Imperial. Is it a good stock to buy then?

Personally, I share his view that it offers value right now. With the stock down around 27% from the level it was trading at two years ago, I think he has been smart to load up on the shares.

It’s no secret there are concerns that the tobacco industry is in decline. However, as my colleague Rupert Hargreaves pointed out, this is nothing new. Tobacco sales have been declining for decades now, yet tobacco manufacturers have always found ways to remain profitable. And tobacco investors have been rewarded handsomely. Zooming in on Imperial Brands in particular, the company has lifted its dividend by 10% per year for nine consecutive years now, which is an incredible achievement, and it plans to keep increasing its payout by 10% per year in the medium term.

Of course, with governments around the world continually trying to regulate the tobacco industry, there are risks to the investment case here. However, with the shares currently trading on a forward-looking P/E of just 11.3 (vs the FTSE 100 median of 13.9) and offering a huge dividend yield of 6.3%, Imperial’s risk/reward profile looks attractive, to my mind.

Burford Capital

While Imperial Brands is a well-known FTSE 100 stock, Woodford’s second-largest holding, Burford Capital (LSE: BUR), is more under the radar. Listed on the AIM market, it provides capital to the global legal industry and is a leader in litigation finance. At 30 June, the stock had a 5.2% weighting in Woodford’s Equity Income fund, according to his website.

Burford Capital is a very different type of stock to Imperial Brands. Whereas Imperial would be classified as a ‘value’ stock given its low P/E and high yield, Burford is definitely more of a ‘growth’ stock. With a forward P/E of a 21.8 and a prospective yield of just 0.5%, its valuation is higher and its yield is lower. However, don’t let these metrics put you off – I believe it could still potentially generate attractive shareholder returns over time.

Burford is certainly growing quickly. For example, over the last three years, revenue has climbed from $82m to $343m, representing a compound annual growth rate (CAGR) of a high 61%. Profits have soared too, with earnings per share last year rising 126% to 127 cents. Woodford Investment Management has stated that it remains confident that Burford can “continue to deliver strong and sustainable growth in the years ahead.”

Overall, as a growth stock, I see long-term potential in this one. However, investors should be aware that after such a strong rise in the share price, the stock could be prone to a near-term correction.

The post Should you buy Neil Woodford’s top two stocks? appeared first on The Twelfth Magpie.

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Edward Sheldon owns shares in Imperial Brands. The Motley Fool UK has recommended Imperial Brands. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Taking today’s action into account, the shares have climbed a smidgen under 1,000% since July 2015, underlining the potential for a single business to completely transform a portfolio’s performance and, in doing so, the wealth of those lucky enough to be invested in it.

Just the start?

This morning’s interim results were predictably excellent. Post-tax profit hit $166.3m for the six months to the end of June — up 17% from the $142.7m achieved over the same period in 2017. Income rose by the same percentage from $177.5m to $205.2m with 65% of this from realised gains. Cash generation soared 61% to $299m with the company’s total assets also climbing 37% in value to $1.64bn by the end of the period.  

While this kind of growth can’t continue indefinitely, I wouldn’t be surprised if Burford — thanks to its status as global leader in what can still be regarded as a niche market — replicated numbers like this for a while yet. Indeed, Chairman Sir Peter Middleton reflected that the company “continues to set the pace for a growing industry.” And CEO Christopher Bogart added that the commitment of more than half a billion dollars to new investments over the traditionally slow interim period fills management with “excitement” on Burford’s potential. While most definitely not a stock for income seekers, the 20% increase in the interim dividend to 3.67¢ only serves to emphasise this confidence.  

Clearly, these superb figures coupled with the great outlook means that buying a slice of Burford’s success is no longer cheap. On a forecast price-to-earnings (P/E) ratio of 26, the stock is now looking pretty dear compared to its industry peer group. With sky-high operating margins and increasing returns on the capital it invests, however, one might argue that that the quality on offer deserves such a valuation. 

Still rising

Burford isn’t the only stock that’s defying gravity. AIM-listed premier technology solutions provider Accesso Technology (LSE: ACSO) is another example of just how quickly a company’s value can shoot upwards. Three years ago, its share price was a little above the 500p mark. Today it stands at 2770p.

Like Burford, further gains seem likely. May’s pre-AGM trading update highlighted a “strong start” to 2018 thanks in part to an extension to an existing deal with global theme park operator Ceder Fair Entertainment.

Positively, Accesso — led by relatively new CEO Paul Noland — is not resting on its laurels. In addition to rubber-stamping a new contract with Detroit-based Henry Ford Health System (marking the company’s first foray into the healthcare industry), it’s also attempting to push its Ingresso ticketing distribution system in the US. Elsewhere, the company’s ShoWare solution continues to be popular, with the mid-cap overseeing ticketing for the opening ceremony of the Special Olympics USA Games earlier this month.

Again, all this comes at a price. Changing hands for a seriously steep 46 times projected earnings, Accesso’s stock is even more expensive than that of Burford. While I don’t doubt that growth will continue and its valuation will eventually surpass the £1bn mark, prospective investors may wish to consider waiting for a general market sell-off before joining the queue for its stock.

The post This top growth stock has now 10-bagged in just three years appeared first on The Twelfth Magpie.

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Paul Summers has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

With this in mind, let’s take a look at two new(ish) stocks on the block and ask whether they are likely to perform strongly over the short term.

Driving returns

Specialising in driving titles — including the Formula 1 franchise — developer and publisher Codemasters Group (LSE: CDM) is the latest option available for those wanting to take advantage of a booming gaming sector after coming to market only a few weeks ago. 

Although the shares have lost some of their early momentum, the current price of 252p still represents a 26% gain on the IPO, suggesting that many are attracted to the company’s desire to bring in more staff and potentially undertake an acquisition spree with the money it’s received.

Given the resilient nature of the industry and the growing popularity of eSports, it seems reasonable to assume that Codemasters could do well for investors. That said, it’s important to go in with eyes wide open.

With stock-specific risks not disimilar to those of other new market entrants Sumo and Team 17, the company has been transparent in stating that its success depends heavily on the popularity of its titles and the renewal of licences going forward. Prospective buyers should also bear in mind that a market cap already in excess of £350m means that doubling the Warwickshire-based business’s share price in a single year is no mean feat. 

Personally, I still believe that the best (and least risky) way of gaining exposure to this industry remains diversified ‘picks and shovels’ services provider Keywords Studios — a firm whose stock continues to mock the concept of gravity.

Unlocking profits

Although not quite as fresh on the market as Codemasters, challenger law firm Keystone Law (LSE: KEYS) is another intriguing option for growth-focused investors, especially those who may have missed the huge gains achieved by AIM-listed litigation finance specialist Burford Capital.

Shares in the strongly cash-generative 16-year-old company, whose clients include Nationwide, Royal Bank of Scotland and Wonga, have been on sparkling form since coming to the market last November, rising 67%. How many FTSE 350 firms can top that?

April’s full-year results suggest this might be only the beginning.

Revenue jumped a little under 24% to £31.6m in the 12 months to the end of January with underlying earnings before interest, tax, depreciation and amortisation (EBITDA) coming in at £3.27m — almost 43% higher than the £2.29m achieved in the previous financial year. Perhaps unsurprisingly, these numbers were recognised as being “comfortably ahead” of what the market was expecting. 

CEO James Knight is certainly bullish on the small-cap’s outlook, having remarked that the £100m cap is“well-positioned to take advantage of the significant market opportunity in the UK legal services market”. The fact that it operates a Purplebricks-like model of allowing staff to work remotely is clearly turning heads with the number of fee earners increasing from 228 to 266 over the reporting period.

Trading on 31 times earnings for the current financial year, there’s little room for error. Nevertheless, should the company continue to outperform, I think it certainly stands a chance of doubling in value within the next year. 

The post Can these new small-cap growth stocks double your money in a year? appeared first on The Twelfth Magpie.

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Paul Summers owns shares in Keywords Studios. The Motley Fool UK has recommended Keywords Studios. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

A history of spectacular returns 

One that’s caught my eye for positive reasons is a stock that I’ve long been bullish on – litigation finance provider Burford Capital (LSE: BUR). The firm’s unique business model provides funding for long and expensive court battles to corporations in return for a cut of any future payout. It has proved immensely popular with corporations looking to cut down on legal costs, insurers seeking to spread risk, and investors clamouring for exposure to a highly lucrative asset class.

And as the world’s largest provider of litigation financing, Burford is benefitting hugely. 2017 saw its income double to $341.2m, net profit after tax increase by 130% to $264.8m and its return on equity leap from 21.1% to 37.4% year-on-year.

This record performance was driven by great returns on cases it invested in as well as an uptick in income from its investment management services from $0.6m to $15.6m. For now, this business line represents a tiny proportion of the overall business, but over the long term it could provide steady returns to balance out the lumpiness of higher returns from cases settling.

It isn’t all rosy for potential investors in Burford as the company’s stock isn’t cheap at 21.7 times forward earnings, and its co-founders and CEO and CIO recently sold one-third of their holding in the company. However, this valuation looks entirely reasonable to me given Burford’s track record and huge addressable market. And the insider selling doesn’t bother me as this is the first time the co-founders have sold stock. I can’t blame them for wanting to diversify given that their remaining 8.3% stake in the company is worth a staggering £250m.

Is the best behind it? 

One Woodford holding that I’d run from rather than buy is homebuilder Taylor Wimpey (LSE: TW), which issued its Q1 trading update this morning. The results were decent, but not spectacular, as management blamed poor weather and lapping a tough comparative period for sales per outlet per week. These dropped from 0.93 to 0.85 year-on-year and its order book shrank slightly to £2,155m.

But to be honest, these results aren’t overly concerning. The company continues to print cash as sky-high demand and constrained supply of new homes has kept prices and margins high for homebuilders. However, at this point in the business cycle, I would not want to own stock in such a cyclical business.

The domestic economy continues to grow adequately, but with wage growth minimal, consumer confidence shot and a bevy of potential macroeconomic headwinds gathering on the horizon, I see little potential for the valuation of homebuilders to rise substantially from their currently subdued level. Investors who are more bullish on the domestic economy than I could find Taylor Wimpey intriguing at 11 times trailing earnings with a phenomenal 7.9% dividend yield. But a rocky outlook for the British economy leaves me bearish on the homebuilder.

The post One Neil Woodford stock I’d buy and one I’d sell appeared first on The Twelfth Magpie.

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Ian Pierce has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.