Burford Capital Share Discussion Threads

[3dwd] 02/8/2019 17:55

We received a number of inquiries stemming from Julian Roberts' question on our earnings call that in the end was not answered because I had been dropped from the conference call line. Thus, we have prepared the following response which we have sent to the analysts (they too have been fielding similar questions) and to investors who have specifically asked the question about returns: We address below the specific returns-based question asked by Julian Roberts on our earnings call that wasn't answered. But before turning to the numbers we really do want to emphasize two important points. First, it is simply wrong to think of this business without its large successes, most recently Petersen and Teinver but before them Gray, sizeable securities matters in the 2011 and 2012 vintages and a big win in an energy arbitration in the 2014 vintage. Large wins are not extraordinary items in our business. They are the very essence of litigation investing, just as in venture capital investing. We make many investments that produce comparatively mediocre results in order to have a few that produce terrific results. We have been clear about this model since our inception. And it is self-evident that our returns will appear to be mediocre if one removes all but those comparatively mediocre results. Second, we think point-in-time accounting-based returns are irrelevant to an understanding of the business. We don't even compute them internally. We look at cash-on-cash returns of the portfolio over time for all the reasons we have articulated previously. However, despite the fact that we think you are engaged in a calculation which doesn't make sense as a way of looking at the business, we are happy to help on the numbers. The headline answer is that Burford's point-in-time realized litigation finance investment returns are in fact higher at the half-year than when expressed on a cumulative cash-on-cash basis. Our ROICs for realized gains in core litigation finance for the six-month period ending 30 June 2019 using our IFRS numbers are 390% with Petersen and 78% without it. (Our cumulative cash-on-cash ROICs in our core litigation finance business are 98% with Petersen's recoveries included and 59% without Petersen.) To arrive at those numbers requires some accounting work; as noted, we don't publish ROICs based on the accounts and until now no investor has ever asked us this question. Note 7 to our statements is the home of the relevant data, but one needs to be cognizant of several factors when making use of that note: • The note is initially presented on a consolidated basis, and thus includes third-party interests that should be removed to consider Burford's balance sheet position. The total realizations for the period on a Burford-only basis were $301.9 million and net realized gains were $124.8 million, as shown later in the note on page 34, but those numbers include more than litigation finance.• Our total realizations for litigation finance were $147.9 million. That number is obtained by starting with the $301.9 million and:o Subtracting $121.0 million of realizations relating to our separate complex strategies business (some of which were interim returns of capital). We have always been clear that complex strategies has a very different return profile and different cash flow norms and is an IRR and not a ROIC play.o Subtracting $33.1 million classified as realizations under the accounting rules but which are in fact just warehousing transactions for investment funds; $20.7 million of that was discussed in note 7 of Burford's 2018 annual report and has now been paid, and a further $12.4 million occurred during the first half.• Our net realized gain for litigation finance was $120.8 million. That number is obtained by starting with the $124.8 million number and:o Adding $7.0 million of gain and subtracting a $3.1 million impairment which are set out separately in note 7 on the lower table on page 33 and do not appear in the net realized gain number in the table on page 34.o Subtracting $7.8 million of gain relating to complex strategies.• The cost associated with those litigation finance investments is $30.9 million: total realizations as calculated above ($147.9 million) less reported net realized gains ($124.8 million reduced by $7.8 million relating to complex strategies to equal $117.0 million, with the other adjustments above not having any cost impact).• The ROIC on core litigation finance activity in the period is thus 390% (gains of $120.8 million divided by costs of $30.9 million), or 78% if Petersen is removed.The complexity of this reporting is one of the reasons why we tend to look to the cash-based returns as a management tool

[luckymouse] 02/8/2019 17:53

lord tiverton of the loony party lol

[winsome] 02/8/2019 17:41

I think its key, as I poinited out a few days ago, that cash receipts have been much higher year on year than income. $93m higher this this for instance. So I assume the excess cash is for previously unrealised gains that have now realised.

Tot up the total cash receipts last 9 years and you'll see.

[winsome] 02/8/2019 17:41

I think its key, as I poinited out a few days ago, that cash receipts have been much higher year on year than income. $93m higher this this for instance. So I assume the excess cash is for previously unrealised gains that have now realised.

Tot up the total cash receipts last 9 years and you'll see.

[lordoftiverton] 02/8/2019 17:00

Brilliant analysis houseofpain, definitely worth more then 10p! Thank you.There is one further concern highlighted by shipoffrogs and Lutheran on stockopedia, which is the huge contribution to realised and unrealised gains by Petersen and Teinver.Concentrating on realised gains since the fair value of Petersen is not disclosed. For the FY2017 & FY2018 plus HY2019 Net realised gains total £434k. Teinver (£94k) and Petersen (£224k) jointly represent over 73% of this total.That's a worryingly large percentage. I would appreciate your thoughts.Thank you

[winsome] 02/8/2019 15:05

Good post jonwig. As Bogart said a few weeks ago, they are only beginning to scratch the surface. Let's hope they can always raise enough cash to invest.

[winsome] 02/8/2019 13:50

Yes, and isn't Woodford a holder of Fevertree too? I'm only concerned with what the share price will be in 2022/23 when I may cash in most of my holding. They'll be on NASDAQ by then and Woodford will be history, IMO.

The 2 main concerns, firstly about possibly having to raise more capital to fund investments - that's a bloody positive thing in my book. Would be awful if they'd too much spare cash and nothing to do with it.

Second, fair value/unrealised gains - you only have to look at the amount of cash receipts from litigation investments last 9 yrs - well over $1bn - to see that past unrealised gains are steadily being realised compared to net income and PAT for same period.

[mad foetus] 02/8/2019 13:00

Agree with all of that winsome. I have no doubt about the long term prospects here, and every set of results show that it is getting cheaper but my view is that the Woodford position probably needs to be resolved as the catalyst for the rerating. Worth adding, as Bogart has mentioned, that a slowdown in the economy would be good for BUR

[djderry] 02/8/2019 12:58

My apologies if I seem exasperated but we've gone round in a circle on this one.Firstly,it makes very little sense to pick out a recent vintage to look at ROIC ,( or ,for that matter,IRRs ).As you know ,it can take years for a portfolio of cases to make its way to fruition.Historically,although this is no indicator of future returns),the cases which take longest to settle offer the most rewards.Cases which settle early will usually involve a discount whereas cases that go all the way are binary and,in the event of success,for Burford that is,offer greater reward.As to market sentiment,it means nothing.Market sentiment before the TMT bubble was completely wrong and there are many other examples.If one is going to let dips and troughs in a share price impact on one's long term investments,then it would be better to put the money in a slot machine.At least there would be some entertainment along the way.Again ,apologies to you for being was flippant in my first response .

[mad foetus] 02/8/2019 12:51

I think it is all sentiment here. But the CEO and CFO being an item, the CEO not being on the board and the AIM listing are all relevant to that imo, and things that could be addressed imo.

[winsome] 02/8/2019 12:47

Those claiming BUR accounts are a bit iffy should post details as to reasons why. However, I suspect they've never read one single BUR report at all. So please state what you find as 'iffy' without cutting and pasting from Cannacord report which has largely been discredited. But I suspect you won't post anything of substance because none of you have anything to go on.

[time_traveller] 02/8/2019 11:36

Why would I be bearish as a holder? Merely questioning the metrics and reputation that I bought in on, in the face of a market that is valuing BUR far below what I calculate it to be worth. Either I'm right, or the market is right (and I generally lose money when I fight the markets opinion - not a fleeting dip in sentiment, but sustained falls).

[djderry] 02/8/2019 10:54

With respect,time_traveller,that makes no sense,either factually or grammatically,and I'm not even British! If you are another one of those espousing bearish views,it's quite apparent that there's no case to answer.The bears are all smoke and mirrors,full of sound and fury ,signifying nothing,as Shakespeare put it.Thise of us who are strong holders will hold.Mug punters or weak holders will be taken in by the clap-trap being spouted by posters who have only a rudimentary and passing interest here.Their only motivation is to earn £2 by buying back their short position having frightened some poor soul out of their position.Meanwhile,those who know what they bought and why are sanguine and go about their daily business.

[time_traveller] 02/8/2019 10:43

How can even the staunch proponents of Burford be even half way satisfied with return on investment? Even coming in in the latter part of 2017, it's very pedestrian - my in in 2018 puts me at a very big loss. A major improvement befitting it's size, is required.

[luckymouse] 01/8/2019 12:56

truthteller - your posts are all on short target boards & full of -ve comment or personal attacks - doing a spot of casual psych bombing lol?

[truthteller3] 01/8/2019 12:47

Don't hold your breath, wiggy. I would far prefer the likes of Emma Thomson to a company whose Chairman had been Chairman and Chief Executive of the very dodgy Barclays Bank and where 2 senior Executive Directors are married to each other. Burford is to be avoided completely, I would say.

The recent share price action says it all in my view. People are waking up to the dangers of such a set-up.

[jonwig] 01/8/2019 12:32

galatea - you forgot (Dame) Emma Thompson, there.

Seriously, though, if this test case gets anywhere I guess it will have a bigger effect on behaviour than all the posturing. And no doubt Burford Capital will profit at some point.

[galatea99] 01/8/2019 11:53

Why doesn't he just sue all the "celebrities", including Prince Harry, who are attending the Google Climate Change Crisis Conference? Reportedly, they only used 114 CO2-spewing private jets, helicopters and mega-yachts to get there, just so they could get together, discuss and then tell the ignorant world about what the ignorant world should do. A real conference of intellectuals that must be. Di Caprio, Harry, Stella McCartney, Katy Perry, all Nobel Prize material that lot. Probably more worthwhile coming out of any pub in the land any night of the week.

[jonwig] 01/8/2019 11:30

Climate change is entering the courtroom, thanks to improvements in "attribution science" (link specific climate events to particular causes). This one will have needed someone to fund it, even if that is Greenpeace:

In one widely reported lawsuit, Saúl Luciano Lliuya, a Peruvian farmer, is suing RWE, a German energy firm, for contributing to the melting of a mountain glacier that threatens to sweep away his village. Mr Luciano Lliuya’s counsel, Roda Verheyen, has said that the case “was mostly made possible by the advancement of...attribution science”. Lindene Patton, a lawyer with the Earth and Water Law Group, a firm specialising in environmental law, has written that “the science of event attribution may become a driver of litigation, as it shifts understanding of what weather is expected and, relevantly for law, foreseeable.”

To a layman, however good attribution science has become, trying to use it to link an event in the Peruvian Andes to a particular firm in Germany looks a bit of a stretch. But whether or not Mr Luciano Lliuya wins his case, the fact it is even being heard is a straw in the wind—and a sign that global warming can change metaphorical weather patterns as well as real ones.

[shanklin] 01/8/2019 10:38

jonwig

IMHO he has completely lost any connection with reality. In the circumstances, continuing to charge fund investors his standard fees is a complete disgrace.

[jonwig] 01/8/2019 10:34

Shanklin - his calculation regarding WEIF is that he can dispose of most of the unquoteds at a fair price so that when he re-opens around December, he can handle redemptions and function fairly normally. So BUR can be held pro tem.

I think that's thoroughly deluded on all counts (visit the WPCT thread for more detail). He can (and will) be sacked as manager of WPCT. It's more complex with his two funds WEIF and WIFF, but the FCA have (at last) opened an investigation; it's possible he could be deemed unfit and removed as manager of these. I hope that's the case.

[mad foetus] 01/8/2019 10:33

I was on phone earlier so didn't express myself clearly. I saw research a few weeks ago that said Burford was unique in that all funds which held BUR held in excess of the weight in their benchmark. Most funds have a token holding of some shares, but the article said BUR was the only company where all institutions that invest hold an outsize interest in BUR compared to their benchmark.
There are 2 implications from this imo:
1) The whole AIM argument, as many benchmark to indices that don't include AIM, and don't look outside of their benchmark for investment opportunities; and
2) Those entities will be cautious about adding because their risk department will be saying "you already own more than the benchmark here and the price is down 20% in 12 months".
So my point is that while it is positive that those fund managers that invest in BUR are clearly bullish about the company, it is less likely that they will top up until an uptrend is in place, and also, we may be limiting our attractiveness to new institutions as BUR is listed on an index that they are not benchmarked to.