Burford Capital Share Discussion Threads

[williamcooper104] 02/5/2019 21:35

Brexitplus - that’s probably 3 percent of invested cash

As they write up cases then any one case could cause much more damage than 3 percent to the then written up balance sheet

Just as I cannot lose any of my original investment in burford

[williamcooper104] 02/5/2019 21:30

Elcapital


There’s no trader/investor alive who hasn’t got something wrong - many times

[riverman77] 02/5/2019 21:20

Thanks, yes I did see that point about them being married but didn't think it was even worthy of comment!

[minerve 2] 02/5/2019 21:07

Hey, Elcapital2018, good to see you. Good luck with your short. ;)

[brexitplus] 02/5/2019 20:39

Didn’t Burford at one point say no individual investment would lose more than 3% of the total value.

[riverman77] 02/5/2019 20:27

Thanks for pasting the share price piece. To be fair I think they make a better case than Canaccord. I thought I'd go through each of the points and address in turn:

Unrealised gains included in profits - this has already been commented on at length, but I think it's fair to say Burford take a very cautious approach and only book gains when there has been clear progress. As explained in the AR there are very few instances (if any) of Burford having to reverse an uplift.

Unrealised gains making an increasing proportion of profits - this is just a function of the fact that Burford has massively increased investment over the past couple of years - these new cases have yet to be realised so in the meantime make up a larger part of the profits.

Major risks to P&L if Burford lose a few cases - they are now very well diversified across lots of cases and portfolios of cases so I see this as less of a risk than before.

Comparison to IMF Bentham who do not mark up, yet trade on lower price to book - not very familiar with IMF, but would be surprised if they match Burford's returns. If they do then, yes IMF are certainly worth a look.

Market cap is $50m per employee v $2 for Goldmans - completely irrelevant comparison, completely different businesses. Some of the tech companies are worth even more on that measure, whereas Walmart would be tiny - it doesn't mean Walmart is better value!

Market cap/AUM - comparsion with Schroders. Firstly, asset management form only a small part of the business, most of the profits come from the balance sheet. However, just taking the asset management side in isolation, you are looking at much higher fees and much higher prospects for growth. Compare with Schroders where fees are under severe pressure and growth hard to come by.

Small number of cases accounting for most of profits - again this is a function of the previously smaller size of the business and the fact that it focused more on single cases. However, the last AR showed that returns continued at a similar level as before despite no huge wins over that period.

Peterson risk - admittedly the impact here is somewhat binary and could trigger either a big fall or rally in the share price. I'm not sure where the 20% figure came from and if that's the right ballpark? In any event it wouldn't be the end of the world for Burford if they lost.

Future returns won't match past returns given level of investment and increased competition - I think it's acknowledged that returns won't continue at same level. If that were the case this would be on multiple of 40-50 (instead of 11!) so this is more than reflected in the price.

Poor cashflow - again this has been discussed here. It is just the nature of this sort of business at this stage of its development - legal cases aren't settled overnight.

Auditor/chairman not changed - grasping at straws now! This could even be seen as positive.

No sign of move from AIM - I'm not too keen on AIM so this is something I'm mindful of, but again this is reflected in the price. If this were US listed it would be double the current market cap.

No barriers to entry - this is not true, you need significant expertise and capital to be successful in this field. Especially at Burford's level as the clear market leader. Reputation and client relationships are key - the big blue chip companies and legal firms aren't going to send cases to some start up firm with no background. They need a trusted partner - someone with deep pockets and the ability to see a case through and help with recovery if necessary (an area where Burford also has strong expertise).

[jonwig] 02/5/2019 19:52

The share price article has attracted some comments. I felt I had to copy this one:

Interesting thought.If the CEO of a public company were to marry the CFO,would that necessitate a romantic news service announcement ? :-]

[mad foetus] 02/5/2019 19:12

The one thing that most posters here know about is the filter button. All views are welcome as long as they are reasoned. "I'm here, never get anything wrong and this is going up/down" is never going to garner respect

[rar100] 02/5/2019 18:14

I would imagine you are hated by everyone you come across, ergo you are the loser.

[galatea99] 02/5/2019 18:01

"going down. watch and learn kids"

Oh dear, someone has popped his big-screen tv so he can place a short on Burford.

[elcapital2018] 02/5/2019 17:53

going down. watch and learn kids

[arregius] 02/5/2019 17:47

Can you put the link? I cant see that on the website

[galatea99] 02/5/2019 17:39

The revaluing of cases is really the only way the value of Burford's portfolio at any one time can be calculated. I see no other way. Obviously, people like CG and share price and others can then use that repeatedly to imply all kinds of things. That is Burford's business. Its investments of capital may take several years to reach their investment conclusion. In the meantime, whenever a clearly defined event occurs that reasonably affects their valuation, then a revaluation (up or down) may be taken into account. These events may be court decisions, results of negotiation, partial sale on the secondary market, etc. I see no other way to do it, really, and it's just something that investors need to understand and accept and then judge for themselves.

The closest scenario I can think of in more common types of companies is that of engineering or contracting companies undertaking multi-year contracts which will have their progressed work on contracts certified and signed off by clients periodically (i.e., "the event") and the amounts signed off on would then become eligible to be reported by the contracting companies as revenue, usually with a contingency reserve held back.

That kind of scenario seems very similar, really, to that of Burford's business. The one major difference is that whereas the contractor would actually receive progress payments based on the progress certificates, Burford would usually be paid only on conclusion. Again, however, that's the nature of the Law, there's no other way to do it.

[winsome] 02/5/2019 17:16

THanks brexitplus, the above is from their most recent annual report if remember right.

Clearly not ideal, this unrealised gains business, but they are obliged to do it under accounting regulations. LTCM report higher levels of unrealised gains and, I suspect, Manolete also do to some extent.

[elcapital2018] 02/5/2019 17:15

this is going down. small position taken with a view to increasing

[winsome] 02/5/2019 17:09

Don't know much about the Shareprophets rag but gather their agenda is to bash anything Woodford holds. This commentary from share price is selective twisting of facts to suit one's own agenda. You can do it with the most perfect of companies. As said above, BUR comment in detail about fair value movements. Their cash generation this year was $100m higher than their Net Income. I assume this covers some of previous year(s) unrealised gains which have now been realised.

[brexitplus] 02/5/2019 17:04

FROM THE BURFORD WEBSITE - I don’t know how long this has been on the website

Of note is

“We specifically eschew any obligation to correct estimates made by financial analysts or to inform the market should we come to believe that our actual performance will diverge from those estimates. ”


“Financial reporting and investment valuation

Burford values transparency in its presentation of financial results and wants to be clear with investors about its approach to those results.

Most of Burford’s income comes from its litigation finance business. Within that business, there are two principal sources of income for accounting purposes, realized gains on investments and unrealized gains on investments. (Realized and unrealized losses will naturally negatively affect income and the principles we set forth here apply equally to losses.)

Realized gains are straightforward: they represent the amount of profit, net of the return of Burford’s invested capital and any previously recognized unrealized gains, on an investment that has either resolved entirely or has been settled or adjudicated such that, in Burford’s view, there is no longer litigation risk associated with the investment. (In the latter event, Burford may discount the anticipated profit in respect of an investment to account for any continuing uncertainty as to the recoverability of any amount.) Burford announces individual investment results that will produce realized gains separately from its financial results only when the individual gain is new information which may be material to Burford.

Unrealized gains are more complex: they represent the fair value of Burford’s investment assets, as determined by Burford’s board of directors in accordance with the requirements of the relevant IFRS standards, as at the end of the relevant financial reporting period. There is no active secondary market for litigation risk, and thus there is generally no market-based approach to assessing fair value; to the extent that a secondary market transaction does take place with respect to an investment, the implied value of that transaction is a key valuation input. In the absence of such a transaction, we are mindful that the outcome of each matter Burford finances is likely to be inherently uncertain, may take several years to conclude and is often difficult to predict with accuracy. Moreover, litigation matters frequently experience multiple significant shifts in sentiment during their evolution. Burford thus eschews fair values based solely on current sentiment, and focuses on objective events (such as court rulings or settlement offers) to ground its assessment of fair value.

Burford’s board of directors assesses the fair value of Burford’s investments after the close of each financial reporting period and therefore investors should not expect updates about potential changes in fair value during the course of any given reporting period. Following the close of each financial reporting period, Burford’s board determines the fair values of investments after taking into account the views of management, the operation of the audit process and input from external experts (as it considers appropriate). Generally, that process does not conclude finally until shortly before the release of Burford’s financial results for the relevant period.

Burford is pleased to be followed by a number of research analysts and we are grateful for their efforts to understand and explain our business. They perform a valuable role in assessing our operating performance, the evolution of the litigation finance market and interpreting other relevant industry developments. However, prospective investors and other market participants must appreciate that, due to the confidential, potentially privileged, long-term and uncertain nature of each investment asset, it is very difficult for research analysts to project accurately the likely investment income of the business. Any projections produced by research analysts are not produced on behalf of Burford and Burford takes no responsibility for such projections. As a result, prospective investors and other market participants should not treat, and Burford does not intend to treat, the financial projections produced by research analysts as indicative of the market’s expectations of Burford’s future financial performance. We specifically eschew any obligation to correct estimates made by financial analysts or to inform the market should we come to believe that our actual performance will diverge from those estimates. This is, of course, different to the approach taken by most operating companies, in respect of which research analysts can produce relatively reliable estimates and the relevant company will advise the market if it expects to see performance materially different from the consensus of analyst forecasts. It is important that investors understand that Burford takes a different approach as a result of the different nature of its business.”