Burford Capital Share Discussion Threads

[tomtrudgian] 21/3/2024 09:30

Is 5.25% post judgement interest on COMMERCIAL debts low? No, but my point below was that the BUR interest rate on its bonds is approaching double that rate. Further it is simple interest, not compound, and now reduced and reducing as US inflation falls. It is variable, calculated on the average rate of US federal treasury bills in the time since judgement.

In short, even if eventually paid in full, the post judgement interest will represent a real loss to BUR, and also there is little incentive for Argentina to pay quickly.

Confused? The US consumer post judgement rate for individual debtors is different. It is set by state law, not federal law, and is fixed. For New York it was massively reduced on 30 April 2022 from 9% to 2%.

My point below remains that the real value of the YPF judgement, after litigation and collection enforcement costs may already be lower than the fair valued asset value in the FY 2023 results. That is doubtless why BUR have confirmed that the auditors will qualify their audit report in this respect.

I remain of the view that BUR is an excellent share to hold, even if YPF is wholly ignored.

[tomtrudgian] 20/3/2024 12:13

Excellent contributions from BlueWiley and RIDER75 on the other board, and thanks. I am not too worried about the appeal even though Preska will not be involved as she has now finally retired.

I am concerned more about the sheer legal cost (and time) of collecting on YPF. These costs cannot be added to the judgement of course, and the post judgement interest is only 5.25%, if ever paid. The idea that BUR can sell the judgement for up to 33% of the judgement plus accrued interest seems, RIDER75, unlikely to me. The non YPF litigation seems however to amply justify well over the current share price

I still wonder if BUR should not consider bundling the YPF judgement into a separate listed company. That would probably be worth more long term than accepting an Argentinian Bond. Who knows anyway how long Milei will remain in office?

[extrader] 18/3/2024 22:34

Ashmore's latest thoughts

.."Argentina: CPI inflation slowed to 13.2% mom in February, 180bps lower than consensus, from 20.6% mom in January. Inflation rose to 276% in yoy terms, up from 254% in January, but better than consensus at 282%..."

In the right direction...

GLA

[djderry] 18/3/2024 21:15

Burford-only operating expenses are 3.7% of the group- wide portfolio.

[kaos3] 18/3/2024 18:38

as costs are huge in numbers /not percentage/ ... it would be interesting to see who gets that huge and sweet business.... are there any questions to be asked.... because there is where the money goes in large quantities .... and we are supposed not to ask and know ... contractual confidentiality....

KPIs of regular partners

yes - i do not trust blindly

[kaos3] 18/3/2024 18:36

big cases will have big employee performance rewards - which is ilogical to me

because a smaller case could be more difficult to solve. just numbers are larger.

it smacks of greed culture.

greed is stimulating but should be framed correctly - for the corporate culture and shareholders benefit, not employees only

[kaos3] 18/3/2024 18:33

to me it is clear as a fog.... as long the cash returns are recycled....

once growth stops and things get more linear - average data can be more predictable and averaged ... i will get it

i miss several KPIs like

average and statistical distribution of cases size
average case solving time
average net and gross return
et similar

some mentioned KPIs and others are implicit or mentioned - but not formed as simple KPIs to follow and compare through time on a slide

--------------------
i liked the explanation about the debt costs being less material than for normal business

[riverman77] 18/3/2024 17:39

I've tried to factor that in - total expenses 270m, of which 110m appear to be related to the YPF accrual. If you exclude this then we get to 160m. However, I'm sure this won't be the last of this type of accrual given the backlog of cases, and also expect salaries to keep going up given the spiralling cost of legal experts - so think 200m is a reasonable estimate for annual expenses going forward.

[jockthescot75] 18/3/2024 17:30

Riverman - I think a large part of that £200m of expenses this year is attributed to YPF isn't it, in accounting terms anyway?

[riverman77] 18/3/2024 12:03

Or more simply IRR is the annualised return generated by the cases. The problem is this does not include the expenses which are substantial and means ROE will be some way behind this. From what I can see BUR seem to be able to deploy 600m per year and average case length is 2.5 years. This would support a steady state portfolio of 1.5bn, which would generate about 375m per year (using an IRR of 25%). With expenses running close to 200m by my estimate, this would only leave 175m EBIT - a net return of about 11%.

Of course, they may be able to deploy more than this, which would change the equation (although also lead to higher expenses I suspect). For me the value mainly lies in the backlog of cases and of course the YPF claim. On the other hand, if looking at this as an asset play the backlog of cases would to a large extent be offset by the 1.5bn in debt. So not an easy one to value by any measure.

[gettingrichslow] 18/3/2024 09:53

Riverman, I don’t think you understand the concept of an Internal Rate of Return. An IRR is the discount rate you’d have to apply for an investment to generate a NPV of zero. So a IRR of 27% or 25% is huge, and this is why (so far) an average Burford deployment has generated far greater returns than one would expect in a normal business.

[dgdg1] 18/3/2024 09:33

Riverman, I think you are making a mistake with your analysis where you state that yearly realised gains are likely to be the IRR of 25% of yearly deployments. This is because the deployments of a given year won't just produce the 25% gain for one year, but on average for about 2-3 years, which is the average life of a case. So I think the right way to look at it is via the ROIC i.e. that the deployments of a year will lead on average in 2-3 years to a realised gain equal to the ROIC of say 85%, so for $500m deployed in 2024 say, expect realised gains of $425m in say 2027. Also, I wouldn't ignore management income as this has actually started to go up quite a bit. They are only reducing the low-fee management investments but they are continuing with the BOF-C fund. It's true though that the yearly costs are high and need to be carefully factored in to estimate actual yearly profits, but the situation is definitely a lot better than the way you are describing it.

[djderry] 16/3/2024 22:19

Hi riverman77,thanks for your post.I think you make some important points.
I'm struggling to understand the math.As you know,realisations come in over many years,there are returns from vintage vintages,and,as we have seen,older cases are no more or less likely to perform.Perhaps,as these cases go on for longer,they may even be more likely to go and and be among the best performers.
Perhaps your figures comprehend this but I'm not clear on that.
As you know,legal matters don't resolve on an annual basis.
Secondly,we have seen,on more than one occasion, cases that have outperformed spectacularly.
Thirdly,we have seen average case size double in the last 3/4 years,which I presume will effect profitability.Obviously I'm not suggesting that one can necessarily extrapolate this into the future,but neither can we discount it,in my view.
Fourthly,we have seen 'family of cases' take on an increasing portion of Burford's commitments,ie cases of a similar nature where Burford has already committed to similar cases,for example different companies taking on the same counter party regarding a similar complaint.Again this has been an area of growing profitability for Burford and I'm not sure if this is being taken into account.
Again,there is much discussion regarding just how large the addressable market is,but I would agree with your view that the company, although hiring and opening new offices,is constrained by just how much business it can properly do due diligence on,and I would never be in favour of taking on more business without the same rigorous due diligence.
On a more general issue,no-one knows if there is another Petersen out there.I'm not saying there is.But I'm prepared to wait and see.

[riverman77] 16/3/2024 14:08

Having a closer look through these results over the weekend, it strikes me there is tremendous value in the existing portfolio, but not so clear how profitable they'll be once all the backlog of cases have fed through. By my rough calculation we could see 2.5bn in realisations from the existing portfolio, plus whatever we ultimately get for YPF. Clearly this more than covers market cap and BUR looks good value on this basis.
However, looking ahead to the steady state level of earnings once these cases clear, I'm not so bullish. Looking at their level of deployments over the last few years, these seem to be in the region of 400-500m. Presumably there is a limit to how much they can deploy based on the level of due diligence required, as well as the number of suitable cases. I'm therefore not expecting deployments to be able to increase significantly from these levels. If we prudently assume an IRR of 25% (slightly below historic IRR of 27%), then a 500m investment would generate around 125m per year. However, expenses are now running at 280m - they say 130m of these relate to YPF accruals, so let's say 150m per year. I haven't even included finance costs, but you can see BUR would struggle to generate any profit, unless it's able to massively increase its deployments - even 1bn would only provide 250m, less 150m expenses, to give a mere 100m before finance costs.
I've not included asset management income here as thst part of the business seems to be reducing in favour of balance sheet investments but in any case unlikely to move the dial.

[chester9] 15/3/2024 16:39

From Seb.On Monday, March 18, Argentina will be involved in two conference calls with Judge Preska, related to the enforcement of two judgments: the YPF Expropriation case and the Bainbridge Fund (holdout creditor) case..I wonder who's looking forward to it more. To be a judge and listen to the arguments over and over must drive your patience to the limit.

[tomtrudgian] 15/3/2024 16:04

‘Presumably it’s been passed by the auditors’, says Extrader, referring I assume to the fair valuation of (Burford only, YPF only) Capital Provision Assets (CPAs). This was increased from US 823m in FY22 to 1.372 billion in FY23.

No audit. No P&L A/c or balance sheet etc was provided. Instead we got a ludicrously extensive unaudited ‘presentation’ including slides.

The US 549 million CPA asset increase (Burford only, YPF only) in fair value may well be justified or even modest, but it surely dwarfs the other metrics for 2023 so trumpeted in the BUR presentation.

No problem. We were told the Burford audited statutory accounts will be published with the Annual Report when submitted to the SEC within 30 days.`I do not expect any changes.

However Burford added that the audit report will be qualified. Due both to ‘material weakness’ in internal financial controls, and to a lack of documented evidence of assumptions in the fair valuing of CPAs. As to the latter the auditors are very probably just covering their backsides. However the use of the word ‘material̵7; is very unusual.

I remain a strong long term shareholder.

[chester9] 15/3/2024 13:56

They have been on the sidelines since price was at 2.74. They choose to not understand the model and whilst softening a bit on their line of commentary they basically prefer to run down Burford.

[lomax99] 15/3/2024 13:50

IC yesterday:

Stellar year for Burford Capital
Cash receipts are pouring in at the litigation funder

Burford Capital (BUR) has had an excellent year. The litigation funder saw realisations jump by 42 per cent to $496mn (£400mn), with courts “back in full swing”. In other words, significantly more of its lawsuits are concluding – and concluding in its favour. Cash generation has also improved, with cash receipts leaping by 49 per cent to $489mn.

A lot of recent excitement has centred around a $16bn final judgment against Argentina, relating to the seizure of Argentine oil major YPF in 2012. Even when YPF assets are stripped from the equation, however, Burford’s unrealised and realised gains are still up 67 per cent year on year.

The tricky part is knowing what comes next. Increased deployments in recent years and relatively low levels of resolutions could mean that more big gains are just around the corner. Meanwhile, the YPF case could ultimately result in a huge cash injection, assuming Argentina loses its appeal and eventually pays the damages.

This is far from guaranteed, however, and during an earnings call analysts questioned whether 2023 was an “outlier on the high side” and asked whether the Covid backlog had temporarily boosted business. More generally, predicting the exact timelines and outcomes of lawsuits remains as tricky as ever – even if Burford says its portfolio is well-diversified in terms of size, client concentration and subject matter.

This lack of visibility makes Burford a difficult company to value. The group currently trades on a forward price/earnings ratio of 8.9 versus a five-year average of 7.8, but its valuation has bounced around a great deal in the past couple of years. With analysts forecasting a sizeable drop in revenue and profit next year, we remain on the sidelines. Hold.

[stentorian] 15/3/2024 11:31

Quote from the Shareholder letter:

"The story of our historic win in the YPF litigation against Argentina has already been well-told in the global media and in our prior shareholder communications. Moreover, for obvious reasons related to strategy and tactics, there is little
we can say publicly about the path forward, although the words of the new President of Argentina are noteworthy:

Javier Milei: Commitments [...] and [...] property rights are strictly respected. When I say commitments, what am I saying? The debt. What am I saying? Debt must be paid.

Interviewer: Even the 16 billion [involving the YPF case]?

Javier Milei: Debt must be paid.
[…]

Interviewer: Does that include the 16 billion dollars from YPF?

Javier Milei: Stop, stop, stop. Yes. That also has to be paid. It's Kicillof's mistake. It has to be paid.4"

[kaos3] 15/3/2024 11:30

i would appreciate figures and net figures ... always

huge difference imho

[kuk1doh] 15/3/2024 10:55

If this link doesn’t work you will find it in investor relations section with the documentation released for yesterday’s results and webcast.

[dekle] 15/3/2024 10:52

Could you forward a link for the shareholder letter please

[kuk1doh] 15/3/2024 10:28

Excellent shareholder letter issued yesterday. Worth a read if you haven’t yet. Very helpful section on the evolution of case funding over the years and the role of debt vs. funds. I too was concerned with the recent bond raising effort but I’m reassured that there is no liquidity risk here. They can settle Sysco in a heartbeat or sell another portion of the YPF win if they ever need cash. Neither is necessary in my opinion.

[scepticalinvestor] 15/3/2024 08:48

Investors starting to jump in