Burford Capital Share Discussion Threads

[galatea99] 25/6/2019 15:30

"Now that this investment has concluded, Burford is able to provide a valuation history for the matter, which illustrates Burford's longstanding and conservative valuation process. At the end of 2016, at a point when the arbitral tribunal had decided the key question of jurisdiction in Teinver's favour but had not decided the merits of the case, the investment was carried at a fair value of $30 million, $17 million of which was recognised as an unrealised gain (19% of the ultimate total profit) and $13 million of which was cost. During 2017, the arbitral tribunal decided the entire matter in Teinver's favour and awarded it substantial damages, and Burford increased the investment's fair value by $39 million to $69 million, generating $39 million of unrealised gain and bringing the total amount of unrealised gain to $56 million (60% of the ultimate profit). In 2018, when Burford sold the investment, it recognised a further $31 million of income to bring the matter to $100 million of proceeds and an $87 million realised gain. Now, in 2019, Burford will recognise the final $7 million of income associated with the put's expiration"



Taking that as a guide to the way Burford works would indicate that where we are with the Petersen and YPF cases corresponds to the first stage in the Teinver case, a decision on case jurisdiction.

Now if a third party is prepared to buy part of the case rights in a case which may still have quite some time to run and Burford decide to hedge that risk by selling part of the case to the third party, so be it. Burford may take a more cautious approach than that third party in valuing the case at that particular time but decides to partially hedge its own risk while taking a nice profit. Nothing wrong in that..

[trident5] 25/6/2019 15:20

Why -that's not where you find the rules on FVA.

[galatea99] 25/6/2019 15:14

Check yourself in Burford's reports and the interviews with Chris Bogart.

[trident5] 25/6/2019 15:11

Galatea - discounting like that is not in accordance with fair value accounting.

[galatea99] 25/6/2019 15:05

"they'll have used the last valuation mark last year as the basis for "value", possibly discounted by a proportion?"

That's what I'm saying but I'd expect them to be consistently conservative and apply a large discount factor. I seem to recall that Chris Bogart has already covered this in one of his interviews. I recall a figure of 30% of implied case value being the base line Burford used.

[kirkie001] 25/6/2019 14:50

I sruggle to see how they'd be booking as large a gain in 2019 H1 of $60-70m. Surely (if they are applying their accounting policy consistently), they'll have used the last valuation mark last year as the basis for "value", possibly discounted by a proportion?

[shanklin] 25/6/2019 14:44

galatea99

Interesting point. It would certainly useful to know its most recent B/S valuation to get an indication of just how conservative an approach is taken by BUR.

[galatea99] 25/6/2019 14:37

shanklin, #6356

"My other thought was about you suggesting a realised gain of $100m; obviously that is the incoming cash, but I think the associated profit on this sale is $20m as it will already have had a value (of $80m) on the BUR B/S."

We don't actually know that Burford would have been carrying their holding on the Balance Sheet on an implied whole case value of $800m. They did sell a 4% stake at an implied value of $800m, that's true, but it does not mean that they would have necessarily used the same implied case value for their remaining stake. Since they seem to be very conservative in their valuation of cases in progress, I'd be inclined to think it would have been on the books at perhaps only 30% or 40% of that and thus that the real profit to be taken on this latest transaction will be much greater than the figure you mention of $20m. I'd expect there to be about $60m or $70m to be taken into profit on this latest transaction, besides a mark-up on the value of the residual stake to reflect the increase of 25% in the secondary market value.

I would not be at all surprised if overall there actually is about $100m (about £80m) or so to be taken to profit in this half-year on the Petersen and Eton Park cases.

[lomax99] 25/6/2019 14:12

I have no issue with them selling of, increasingly valuable, portions of the claim - seems eminently sensible, crystallising increased returns and providing funds for re-investment. They have promised to retain just over 50%, so will have a significant interest in the end outcome.

[kirkie001] 25/6/2019 13:54

Well - what they aren't is in control of when a case settles, or not.

So surely, based on the facts, if they can find a willing third party who is able to buy a proportion of a claim off them based on the fact pattern and their due diligence - that's the best possible evidence as to value, right?

So I'm really struggling to see a downside to what they're doing - unless they are selling out and crystallising losses?

[kirkie001] 25/6/2019 12:50

If it's a mechanism for writing up unrealised gains - then it's being done off the basis of an actual transaction which has taken place: therefore giving a market observable basis for the value (as opposed to a theorerical value based on an assessment of the likely value)?

So - therefore - better evidence? Or am I missing something?

[trident5] 25/6/2019 12:23

Alphabet - do you think the sale was organised and executed yesterday - between the hearing and the release of the RNS?

It could be prudent risk management - it could also be a mechanism for writing up unrealised gains.

[bestace] 25/6/2019 12:20

YPF showing absolutely no inclination to settle:

[alphabeta4] 25/6/2019 11:52

Trident - Burford can't control the hearing timetable. If they were doing this outside a notable event then there would be a case but each time they're selling it is because something has changed to up the value of their investment.

If they didn't sell stakes then they would still be consequently upping the valuation on the case value anyway which would still feed into the accounts. Looks nothing more than prudent risk management.

[sogoesit] 25/6/2019 11:38

What has Portia, not the heiress of Belmont, done now (as I must have missed it)?

Anyway, the illogicality (is that a word?) of the share price reaction to more cash for compounding and a re-valuation of Petersen means that something is adrift and it presents me with an accumulation opportunity.

(Reminder: 1630'ish gets it back on the 95% CAGR trend line going back to December 2016... 95% I repeat).

[xajorkith] 25/6/2019 11:37

No problem Martin.

I only referred to the realised gain as a profit banked in response to the view of many that unrealised gains are effectively worthless.

With the decision going in their favour, I can only see the notional value of the remaining 61.25% increasing as the pressure grows on Argentina to settle.

Regardless, BUR continue to generate exceptional returns.

[brexitplus] 25/6/2019 10:36

Volumes today very low.

Thank you Portia Patel for helping me top up at a big discount with your naive analysis.

[kirkie001] 25/6/2019 10:31

Trident - I'm not sure I understand you?

They've sold this investment in June - after the year end (obviously!), after the accounts for the year end were signed off, and before the half year end....

[trident5] 25/6/2019 09:46

I'm just commenting on what has now become a clear pattern.

[brexitplus] 25/6/2019 09:41

Trident5

What would you do in their position?

I look at it this way.

1 Burford recycles profits. There is a big demand for their service. The $100 million can be recycled to generate more profits.

2 Burford had no say in the date of the Court decision. It could have been after year end. Other investors have obviously been clamouring for part of the deal. Agreements with the ELEVEN investors (and remember it was oversubscribed) must have been made well in advance to have been announced at the same time as the decision.

[trident5] 25/6/2019 09:38

Burford have an extraordinary habit of selling part-interests in cases between year end and accounts sign off.

Are they selling these interests for the right reasons or to trigger write-ups in their remaining interests to make the year end accounts look better?

[brexitplus] 25/6/2019 09:17

So Liberum target price 2x Cannacord

Someone is wrong!!!