Wedbush Downgrades Burford Capital (BUR) to Neutral
Wedbush analyst Michael Piccolo downgraded Burford Capital (NYSE: BUR) from Outperform to Neutral with a price target of $4.75 (from $6.00).
The analyst comments "After the release of our report Friday afternoon, Burford published a detailed press release discussing its view on the US Appeals Court’s adverse ruling on the YPF matter. Included in this release was the comment that any fair value marks could result in Burford triggering net worth requirements which could prevent the company from issuing additional debt. While there is no immediate issue tied to this, the restriction could result in the company altering growth targets to enhance cash generation. This adds, in addition to the much-discussed legal risk factor, a financial risk factor into the discussion. Reflecting this, we are increasing the discount rate used on our simple ROE valuation model from 0% to 25% and lowering our price target to the implied combined value (probability weighted and ROE-based valuation approaches) to $4.75 per share. Note we are leaving our earnings estimates unchanged and discuss further on the following page. We continue to believe that Burford’s successful long-term track record is currently being overshadowed by the YPF outcome and the stock’s significant decline on Friday may have been the necessary clearing event that will now allow investors to focus on the company’s core business. For investors with an appropriate risk tolerance and long-term holding period, this may be an attractive entry point. However, given what we see as a rather balanced risk/reward for the near-term, we are moving to the sidelines and changing our rating from OUTPERFORM to NEUTRAL until we get more clarity on how last week's news will impact growth in capital provision assets and likely ROTCE levels."
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Shares of Burford Capital closed at $4.14 yesterday.