Burford Capital Share Discussion Threads

[adnan17] 08/8/2019 12:39

Valuing any asset is an art. Valuing property is an art. Valuing wine is an art. Even valuing art paintings is an art. Hence valuing legal cases is an art as well.

The real test is what happens with the legal case concludes/settles. That is when all monies are paid. Case is closed. All appeals have been conducted. Under this scenario Burford have made $1,158.9m return against a $585.9m initial investment.

If I owned a commercial property business which was held in a company and the company issued shares (i.e. Real Estate Investment Trusts, REITS). How would I price/sell/buy the shares if the commercial properties were not regularly valued or "marked". The seller of the shares would be underselling his stock if book value of the properties was used.

Hence any business which has tangible assets needs regular valuations done. Otherwise how would I know at what price to sell/buy the shares.

So to go back to my original point if investors want "Net cash flow from Operating Profits" to be positive tell the board to stop growing the business so quickly which they did in 2017 & 2018 with the "New investment commitments".

[sirrux] 08/8/2019 12:38

Not only is this an attack on BUR, it's also an attack on IFRS - we have a global situation where businesses can account for things in lots of different ways! The accounting for big money litigation when done as business will probably need to change from here. The definition of a completed investment may tie in with the accounting rules, but in the type of big cases that these funders handle, completion (to satisfy the accounting rules for reconginising income) really just means that you have a claim on the recovery, not the recovery itself. The investor really needs to know how those claims (completions) are being monetised and who those counterparties are.

[sweet karolina2] 08/8/2019 12:33

adnan,

For each year take the change in cash at bank and subtract gross proceeds from equity or debt raises that year and you will see that overall from 2013 onwards cash is being consumed at an alarming rate. Yes some is going into increases in NAV (2.4% PA on average) and some is going to pay dividends (1.4% PA on average) but the bottom line is cash is going out rather than in year on year.

CC2014,

I thought the bond market reaction yesterday was quite extreme. Basically bonds are supposed to be safe - you get your interest and you get your original capital back n maturity. If an interest rate is better than you can get elsewhere and the bond is still nice and safe then you might pay a premium eg £1.05 to £ if the rate is not that good or there is a bit of risk 95p to £. What the bond market was pricing in yesterday was BUR going bust and the bonds no paying back all that is owed hence 60p in £. Where as 0p is a possibility which cannot be ruled out, I think it is unlikely and clearly the bond market now thinks that too.

I do agree with you that unless BUR can completely refute the whole thing - I doubt they can as the my cashflow analysis seems to tally with a lot of MW analysis conclusions, only extreme junk bonds (15%+) are going to be issueable. BUR do look as though they will need more cash unless they sell over the 50.1% of Petersen they say they will never sell. With the share price decimated and major shareholders like INVESCO and Woodford getting bloody noses and Woodford being broke I am not convinced an RI would get away (eg KIE RI disaster and Woody still had other people's money to back that one) which leave bucket shops or death spiral providers. I am sure though that those sources will pony up enough to keep BUR going.

I can't remember when the first bonds mature and how much they are, clearly refinancing those could be another interesting exercise.

[1corrado] 08/8/2019 12:27

Bought some at 569 we shall looking to sell at 600p quick profit.(MAY BE).

[trident5] 08/8/2019 12:26

Yes Adnan - but as we are seeing managing commitments/funding and profits is more art (dark) than science.

[adnan17] 08/8/2019 12:19

It is a strategic choice because both in 2017 and 2018 they ramped up their new investment commitments(2016: USD378m, 2017: USD 1.3bn, 2018: USD 1.3bn, see page 8 of Annual Report 2018).

Hence, investors could have stated to the board that too much cash was flowing out of the business to fund these new investments and to slow down. Hence this would have reduced the "Funding of litigation investments".

You cant have it both ways. You can't believe litigation funding is a strong growth market (across developed nations) and want to invest in litigation cases and make future returns AND at the same time want "Net cash inflow from operating activities" to be positive. Under the latter scenario the strategic direction of the board would be to slow down. Investors/board need to pick which they want.

[sophia1982] 08/8/2019 12:14

Hi Sweet Karolina,

I have gone again through all the accounts and it is a bit of a nightmare.
However I disagree with you. The company does generate cash. It is just that the CF statement is a mess.
One way one can look at it would be to take year end net debt. You add investments in legal cases + dividends + operating expenses. Subtract new issues of debt and compare to previous year debt. You will discover that the company does generate CF.

You can take for ex 1H 19 and we can compare our results.

At the same time, it is not clear to me why we do not see (net of new additions) more movement in the value of investments on the B/S.
For ex., you had cash receipts of about 500m in 2018 and new investments of 740m. Investments on the B/S have gone from 1.1bn in 2017 to 1.6bn in 2018.
I don't know if I get this wrong, but legacy investments should go from 1.1 to 0.6 + 740 = circa 1340 (a little far from 1.6 billion)...

[trident5] 08/8/2019 12:09

Adnan - funding of investments is not always a strategic choice. They have commitments which will make up some (unknown) proportion of that funding.

If there are insolvency concerns then the demand for funding those commitments may be accelerated.

[mbdx7em21] 08/8/2019 12:09

would expect rebuttal/conference call by monday at latest imo

[williamcooper104] 08/8/2019 12:05

They could also raise a high yield private placement with a debt fund - would be c10 percent coupon

[adnan17] 08/8/2019 12:04

So you say they are not making cash from their investments. So are you able to explain what the items "Proceeds from litigation investments" and "Proceeds from new initiative investments" refer to in their cashflow statement (on page 68 of 2018 annual reports). In 2018 they made USD 629.4m from "Proceeds from litigation investments" and USD 8.75m from "Proceeds from new initiative investments".

If they had reduced the "Funding of investments" from USD 738.2m to say USD 400m then Net cash flow from operating activities would have been positive.

Funding of investments is a strategic choice. How else do you grow the business if you don't fund investments? In addition, Burford have said repeatedly that demand from investments has been rising sharply and they are finding more and more cases that need funding.

So if cash flow is a concern and investors don't want the business to grow why don't investors voice that and tell the board that they want to reduce "Funding of investments".

[williamcooper104] 08/8/2019 12:04

Can still do a rescue rights issue - would be utterly brutal for share price - but great for bonds

[williamcooper104] 08/8/2019 12:01

Was confused as to whether it's $700m or $667m of bond debt

[chimers] 08/8/2019 12:00

So you all hope the directors will buy 100'000 shares each at a rough cost of £574k each?

If they buy less than that what will you think?

If 100k shares is not enough what is in your opinion?

Who will they buy that amount of stock from ? is it available?

[cc2014] 08/8/2019 12:00

I have voted up your post sk. I ran all the numbers before the MW announcement and had been selling my bonds for some time. All gone thankfully by last week.

I think it's also worthwhile considering the source of their debt. About £500m of retail bonds (someone could work this out precisely) and one other tranche.

Now the thing is they've only gone for retail bonds because they can't get the issues away on the main wholesale bond market.


Whatever happens from here they aren't going to get new funding from the wholesale market as they couldn't to start with, only the retail market will supply and my question is what is the appetite for that. Low I'd say. They say they need new funding for sure....

I'd say it's close to a death spiral although not coming to a conclusion for some years until the debt it due.

I had the opportunity to buy retail bonds at 60p in the £ yesterday. I turned it down, because I can't see where they get new capital and how they repay the existing capital. maybe they won't need to repay it, just roll it but by then what price will it be?

Clearly the market does not agree with me. Retail bonds have bounced considerably.
BUR3 was yeilding 15% yesterday. Today it is 6.5%. It's mis-priced imho. There are easier, less risky ways to make 6.5% for sure

[williamcooper104] 08/8/2019 11:56

Nor does it need to be - not all of their £118m will be liquid But find it hard to believe they couldn't find £20m

[williamcooper104] 08/8/2019 11:55

Motivated directors buying in and of itself not sufficient It's more the signal given if wealthy management (not actually board directors after all) don't majorly invest at this time Unbridled optimism after all

[williamcooper104] 08/8/2019 11:52

Dividends are never financing costs as they are discretionary you don't pay them (even prefs - usually) you do not go bankrupt

[dudishes] 08/8/2019 11:49

Chimers - WD but mug punters too busy ramping (to £10)! Clue is Woodford and his ex sidekick (mate) Mark Burnett! Enron accounting school springs to mind - How to make a profit when litigation is negative!

Repeat & rinse short today @ £6 (role over yesterdays win of 600pts)!

Lost 200pts late yesterday (Co announcement), we await Director Purchases?

WD Carson Block!

Trailing stop loss in today in order to maximise short position.

cheers

[1oughton] 08/8/2019 11:41

depends on the size of their buying I guess

certainly wont be a combined £118m which was their sells in 18

[sweet karolina2] 08/8/2019 11:41

Sophia, Chris Engle,

I have done an overall analysis of all the cashflow statements from the beginning.

Very interesting:

In the 2010 accounts there was the initial share issue and then a big drop in cash as the money was invested. Fine exactly what you would expect.

2011 was relatively impressive as BUR were able to pay a dividend virtually entirely out of free cash generated. Impressive because you would not expect this so soon.

2012 was even more impressive as the dividend was paid with cash to spare and the same in 2013.

Then it all changed! Cash has been raised in debt and equity and ploughed into the various investments. Ok they think they have a good cash generative model so scale it up and make even more cash. But the cash has not been generated indeed quite alarming amounts have disappeared out of the bank each year when you include what was raised in debt and equity that year.

Over the 9.5 years to H1 2019 $1.2bn has been raised with $0.2Bn left in the bank at time of those accounts. So $1Bn of cash is no longer cash. If you exclude the cash from NAV you see that $1Bn has grown by 23% ie about 2.4% per year as Investments and other net assets - not massively impressive. In that time you can add 1.4% for dividends paid, so overall annual return of about 3.8%.

Since 2013 the dividend has increased but has been paid out of debt / equity raised and not out of cash generated - it is bribing shareholders with their own and bond holders' money and therefore I believe MW is right to include it as a financing cost.

If we believe NAV is accurate (it contains a lot of fair value which may or may not become real value as MW clearly showed and there may be quite a few contingent liabilities not included in the BS) then profit for the whole 9.5 years is about $0.3Bn ie about $31m per year (a £3Bn Mkt cap / £3.5Bn EV company!???). But declared post tax profit over the 9.5 year period is about $1Bn.

There are reasons why a growth company would have such large discrepancies between P&L BS and CF, however over time CF should catch up. However I don't believe it is, especially if you exclude the sales of stake in the Petersen case, which do seem to occur shortly before accounting periods end - not saying they are not real, just that the motivation for the sale is probably more orientated to keeping the cash flow figures from looking too disastrous.

It is strange MW did not pick up on any of this when it is all rather obvious, if you look and do a bit of vary basic analysis. I therefore suspect that this is the hidden hammer blow which MW are sitting on in order to rebut the BUR full rebuttal when it comes.

This game is definitely one to watch from the sidelines as it unfolds. Going long or short at the wrong time could be extremely damaging to your wealth.

[harrisdodd] 08/8/2019 11:40

Hi I hope that you are doing great thanks too I hope your days are

[harrisdodd] 08/8/2019 11:39

Hi am sorry to a

[minerve 2] 08/8/2019 11:36

Minerve will say ‘when’ on Burford Special Brew.