Burford Capital Share Discussion Threads

[williamcooper104] 26/7/2019 15:41

The fact that it's gobbling up cash and growing investments is what makes it cheap on a PEx And future equity raises so long as done to grow business rather than as a rescue rights issue should not be a problem

[williamcooper104] 26/7/2019 15:38

If they can constantly repeat reasonable levels of profit then PE multiple is surely the right valuation approach They aren't a property company

[williamcooper104] 26/7/2019 15:33

They usually claim to be running on a pro-for ma ebitda profit - but that's often by making lots of questionable ebitda adjustments and no one really knows the profitability until they actually start making them But with Bur there's no question that the underlying business is anything from highly to super profitable

[shanklin] 26/7/2019 15:31

Removed as incorrect...

p30 of
is worth a read re the valuation of unfinalised activities

[dgdg1] 26/7/2019 15:20

I can't see why this is such a problem, unless of course you think the company is being dishonest about the value of its investments, but I don't think anyone has presented any accusation or evidence of that. If you accept the values then it's like the company ownns a property or share portfolio which is increasing in value, and eventually assets get sold. The profir is recognised as the value increases, but of course eventually the cash is produced. Why is that so bad? If you are going to argue that the cash can't be distributed until it arrives, that's not an issue because it will still arrive after a couple of years on average. If the argument is that it can't be re-invested until it arrives then that too doesn't seem a problem as at the end of the day the asset values are increasing nicely and producing a good IRR.

[edmondj] 26/7/2019 15:02

But as it gets bigger, the greater also the element of 'profit' they are marking to market and boosting profits by way of taking a view on the outcomes of legal cases. Plus the gap between such profits and actual cash returns from investments during any reporting period. This is what increasingly concerned me a year or so ago; which was rejected here but since then the bull trend has broken down - replaced by a volatile consolidation phase, albeit no definite downtrend as yet. Investors are clearly calling some things into question.

[dgdg1] 26/7/2019 14:47

I view it as a normal company where cash generation is the relevant factor, it could choose to distribute some of the profits when they turn into cash and just re-invest the origianl capital, or to re-invest a small part of the profirs - it's just that it is choosing to re-invest nearly all the returned capital and profits back in to new cases as it wants to make as much profit as possible. At some point they can choose to re-invest a smaller proportion or indeed none of the profit and just re-invest the capital. So profits and p/e is what counts for me, it's just in a growth phase so it's re-investing profits. Based on pe it's cheap.

[edmondj] 26/7/2019 14:32

Graham Neary took a similar NAV approach, effectively to suggest the stock was not worth chasing, a year or two ago. The article(s) probably still on Stockopedia.

[minerve 2] 26/7/2019 14:32

Minerve will say 'when'.

😂😂😂😂8514;😂ԅ14;😂😂;😂😂😂😂
28514;

[mad foetus] 26/7/2019 14:16

You overlook the funds they manage, which generally have a payment of 20% to BUR of all profits after the original investment is paid back. These fees are all back loaded and are yet to contribute to results.

[hpcg] 26/7/2019 13:34

I went in before results and came out again this morning having turned fleeting gains in to minor losses. I hadn't researched sufficiently. To my mind there are two ways of looking at the business. It could be seen as an accumulating fund where the current value is the NAV at fair value and NAV / share and growth in NAV / share are the only metrics to monitor. Or it is a conventional trading company where cash generation, cash conversion are the real profit. It is clearly more like the former than the latter so PE and PEG are of no consequence, just as they were misleading for AMZN.

However looking at NAV and the contributors to NAV growth, ROE, ROA, ROCE it is simply not good value. With 1 share buying assets worth 1/3 even at an annual return on equity of 30% (Stockopedia has 29.4% for TTM and now declining from a peak in FY2017 pf 35%, it will take the best part of 5 years for a share purchased now to be worth liquidation value. That's using ROE, stockopedia has ROCE at 16%. Some of this is leveraged with debt, which makes sense, and I guess from the jump in BV per share to end FY2018 that investments take around 2 years to pay off.

I do accept two things: firstly that BV is somewhat below realised value, and secondly that after 5 years if the company is still generating strong compounding returns then it is worth more than BV. Still for me though it isn't worth the current trading price, and I'm sure for that matter it wouldn't be for PE.

[alter ego] 26/7/2019 13:12

there seems to me to be four factors negatively impacting the SP:

- woodford - will need to sell at some point. Buyers waiting until he's out.

- cashflow - the point is valid that BUR need more funds to maintain growth. However, it's far from obvious that that means an equity raise. Recent evidence suggests that BUR are increasingly prepared to use other peoples money in return for a slice of the profits. Does that imply lower profits? Perhaps the rate of return will be lower but deploying larger amounts of capital is likely to mean higher absolute profit.

- the allegation that they inflate returns by manipulating the value of outstanding cases. I don't buy that one at all. BUR are completely open about the process, publish data to permit analysis and point to the fact that it is very rare for them to have to write down the value of a case they have previously written up. If you want to believe that's a lie, you had better come up with some data to prove it.

- Canaccord's negative views are clearly having an effect. Are Canaccord impartial? To me they are the same as any other punter wishing to influence the stock price to suit their own ends. In a jittery market some will believe the propaganda.

For me, AIM is a distraction. Whichever market they list on, the nature of the business and the business model is the same so detractors won't stop just because they are not on AIM.

[discodave4] 26/7/2019 12:36

Fair point, it was the general principle.......not all growing e-retailers are operating at a loss.

[dgdg1] 26/7/2019 12:31

It's not exactly the same as en etailer expanding - in that case they are spending a lot on marketing costs and thus genuinely running at a loss in the short term in order to become better known at which point they can reduce marketing and make profits. Burford isn't running at a loss at all, its investments are on average making good returns. It's purely a cashflow issue in that in their eagerness to expand they are investing so much in new cases and only slowly getting the cash back from their old investments, which struggle to catch up with the amount of new cash needed for new cases.

[discodave4] 26/7/2019 12:15

......yesterday! (I've lost a day somewhere! Lol).

[discodave4] 26/7/2019 12:13

Looks like Woodford is offloading some MERC, so perhaps he did likewise here on results day?.

[3dwd] 26/7/2019 11:32

, you can strip out the good cases to make the remainder look bad. Equally you could strip out the bad ones and make the result look better. Fact is they did good and bad. And the Petersen results was $100m of hard cash, not just a revaluation...Hence their cash on balance sheet was higher at the end of the period than the start....all good in my opinion.

[discodave4] 26/7/2019 11:21

Thanks, agree.This is still a growth company so there will be an inverse correlation with cash flow and profits (won't there?) as they are investing in that growth. It's no different in my mind between say an e-retailer funding growth via marketing spend and thus net cash flow will be reducing in order to sustain/increase its growth (but not an expert!). So don't quite get Shadows argument.

[alphabeta4] 26/7/2019 11:20

For me I'm going to be paying close attention to how many of the 2017-19 cases complete. There looks to be a 3 year average (would be handy if anyone has any thoughts on this). If that starts to creep up then I would suspect risk is being taken to generate the returns.

On the flip side Bogart and Molot have around £120m each in the company and the employees have been keen to jump in. I would suspect they would voice their concerns if they felt the risk profile was changing. The track record on old vintages has been good and there isn't really much to gain by taking unnecessary risk when it's quite hard to offload 8m shares. IMHO on balance for now it comes down to trust, management haven't disappointed to date and it should be quite lucrative if they are proved right.

[galatea99] 26/7/2019 11:07

@DD4:

It is extremely weak and particularly cynical. Most growing businesses go through that obvious stage of having to spend more than they get in from the investments they make, so as to build the business. This is obviously even more true in a business where legal cases take on average close to two years to conclude.

In the conference call, Chris Bogart addressed this very point, as follows:

"That being said, we are delighted to grow these numbers, and we're pleased that we're continuing to do so, and rapidly growing the business with commitments and deployments requires external capital as the duration of our assets is such that we can't finance organically all of that high level of growth, but that, from our perspective, is a very good thing. We would much prefer to have higher growth in this business, which we then need to finance than lower growth that we can finance entirely organically, even though we already are generating lots of cash."

All common sense, really, but it is so depressing that the London market seems to panic at the drop of a hat and not bother to THINK about things.

[williamcooper104] 26/7/2019 10:59

Winsome - when the PE first got to 20x I felt it was a bit frothy, and that it was being pushed by a "risk on" market though increasingly I think 20 is reasonable given all the growth/momentum signs

[williamcooper104] 26/7/2019 10:53

Not necessarily - or rather maybe not for a long time - if they become the Blackstone of litigation finance and really built litigation as a genuine asset class then it could be 10-15 years before there's meaningful dividends - but if that happens you won't care

[discodave4] 26/7/2019 10:51

ShadowFall shorting seems to be focusing on cash flow but seems a weak case IMO but not been keeping up with BUR numbers lately. Https://mobile.twitter.com/shadowfallcr/status/1154336564870361088