Burford Capital Share Discussion Threads

[nudog69] 13/8/2019 14:38

Whoops 😬 look out 👀✌A039; Think sweetie thing gonna get her jugs out! 😱 lol

[sogoesit] 13/8/2019 14:38

Great stuff, WilliamCooper, it’s the reason I’m invested here too.
(I used to trade options as well).

I disagree “tho that we need to put an earnings model on a discrete outcome.
What we need to do is statistically model all the historic outcomes, including the discrete outliers, input those distributions into a DCF model and risk value the cash flow stream.
This is what we do in resources economic modelling.

[williamcooper104] 13/8/2019 14:37

And if you have to model whether something is a good risk/reward investment then you have your answer before staring building your model

[mad foetus] 13/8/2019 14:35

Class actions and cases for poor plaintiffs are the bread and butter. Let's say you are a US inventor and believe that a giant - Apple, Microsoft etc - have stolen one of your patents. You would have no chance of getting that off the ground unless you go to someone like BUR. The next few weeks will be key. They have to sort out all the governance issues and get 2 or 3 big strategic investors on board before gearing up for a US listing. If they decide to go back to business as usual mode, the share price will flounder and the prospects of continued fast growth does depend on continued funding.

[winsome] 13/8/2019 14:35

sk, last week I read a BBC article on the growing popular belief due to youtube and social media that the world is flat. It's a big trend at the moment. Many people actual still believe it. So 'arguably' it is flat and that's probably why Numis used that reference.

[sweet karolina2] 13/8/2019 14:34

sogoesit,

As someone who has done quite a bit of modelling in various forms in various subject matter areas, there is no way you can produce an even vaguely reliable model from the data set you have.

All models are wrong some models are useful is the mantra, sadly your model will prove to be useless.

I think I know why you only use data to 2015, would that be because BUR stopped giving case by case data then and started only giving cohort overall averaged data?

How have you accounted for the Napo case in your model?

In my 2nd Masters degree one of the modules was critical analysis of models so I really do know what I am talking about.

[winsome] 13/8/2019 14:30

sk there is an argument for using BUR's accounting model in the early years of such a company when cash settlements from investments take a number of years to realise but you want to show your company is growing those assets and potential profits. Then you attract more capital investment as BUR has done. But in recent years BUR's cash receipts have caught up with and overtaken their reported net income as all these settlements are now flowing through.

I'm not suggesting BUR did it this way for that reason but I can see why if they did. But I'm guessing if they suddenly flipped to IMF B's model they're accounts would look pretty good, even better, now they have such a large array of maturing investments and less lumpiness.

[edmondj] 13/8/2019 14:30

Goes from bad to worse. "I believe the Numis stance is arguably moronic" then.

[williamcooper104] 13/8/2019 14:29

Sogoesit - I first invested not that long after reading Black Swan and the asymmetric nature of the asset class attracted me - which was proved my Peterson The issue is if you try and put an earnings multiple on your black Swans

[sogoesit] 13/8/2019 14:29

Well SK2, I think we can quantify the risk/reward, contingent on there being statistically adequate history.
This is the whole point of my exercise.
We do these exercises in resource modelling where the inputs are multi-variate so, here, the input is a single variable and limited. It should be really simple in my view and MF has alluded to that.

[jeff h] 13/8/2019 14:28

Today analysts at Numis, which serves as Burford’s house broker, slammed Muddy Waters’ report.

Analyst James Hamilton said: “We believe Muddy Waters’ comment that Burford is ‘arguably insolvent’ is up there with comments like the Earth is arguably flat. The group is by far the least-leveraged specialist lender that we cover.”

[sogoesit] 13/8/2019 14:24

Indeed MF, this is the key issue, the risk symmetry.
And, as you say, we can quantify the downside which is the cost of litigation.
In SK’s example that is the same cost as litigation with no recovery (unless one spends a bit more on recovery).
I have tabulated the published case costs, and I have posted them here.
The cumulative average for BUR, to 2015, works out as $5.92m per case.

With that, and more case data, say from other companies, I can move onto the statistical modelling of the outcomes.

In summary, the risk is asymmetrical. This is what NN Taleb calls “optionality”.
Each case is, in fact, a call option. Limited downside risk for high to “unlimitedR21; upside reward.
If we conclude that is true each case could be traded (maybe even without transparent disclosure) and priced.

[sweet karolina2] 13/8/2019 14:21

I wish anyone who goes into this with their eyes open the very best of luck and I genuinely mean that. Keep your eyes and ears open and avoid confirmation bias. I rarely bother to read BBs of shares I own, other than to pick up occasional links to interesting articles, ie not paid for PR fluff from house brokers and proactive investor types. Very very occasionally someone posts something coherent that does not fit with my view and then I really am interested.

[winsome] 13/8/2019 14:21

MF, bloody good post and brings a sense of reality back to the current situation. I've always said on here I bought into BUR due to my insight into the whole business as a lead witness in a class action suit. I learned far more about litigation than I ever wanted to and can back up what you say. And MW's response today seems in similar style to the replies from the defendant in our case - a bit desperate and more mud flinging. But no more mention of their biggest money shot - that BUR are insolvent.

Good reply from Numis today that 'arguably the world is flat but BUR are the least leveraged client they have on their books'

[sweet karolina2] 13/8/2019 14:15

Sogoesit,

I don't think anyone could genuinely model the cash risk / reward of litigation funding - the both probability and quantum are pure guesswork. On a case by case basis it is so totally unpredictable. There are instances where the loss for the funder can be greater than total wipeout of what was put in. Examples raised by MW were the super yacht and the property sale, there may be more we don't know about. It does not appear that either has resulted in an actual loss for BUR, the forced property sale case ironically failed because the plaintiffs could not get the litigation finance needed.

Also ironically IMF Bentham are held up as how accounting in the industry should be done, but they seem to get relatively steady returns, as most come from out of court settlements, so they probably could do a reasonably reliable and conservative mark to model fair value accounting. However investors are quite used to the lumpy nature of cash accounting and IMF had no problems getting bonds away last year to fund a new US portfolio, so why would they change from something that works and is transparent.

[williamcooper104] 13/8/2019 14:13

Winsome - 100 percent agree I'm back in - but just a little - will go properly back in when see real corporate governance changes Not trying to grab the bottom of the market

[mad foetus] 13/8/2019 14:12

Sogoesit,
I think the returns are asymmetric. Firstly, you have to bear in mind how selective BUR are at choosing which cases to fund: in 2018 they had 1,470 enquiries, from which 168 met the criteria of the investment committee and 87 were actually funded. So you have to assume from that the returns will be better than 50/50.
The second point is that Burford's model is to fund the litigation in return for an agreement that, if the case wins, from the proceeds recovered, the legal fees will be repaid and then BUR will get its share, typically 30%. I'm not sure but if they lose the case I suspect that BUR may be on the hook for some of the opposition's fees, though in reality nobody recovers more than 60% of their legal fees. This is tied in with the fact that BUR are primarily funding plaintiffs rather than defendants.

So, an example. A typical litigation case, with both sides expected to pay £10m in fees to go to trial for a matter worth £100m.

Bur funds the plaintiff, X. Because BUR is such a big user of legal services, they can probably reduce the legal fees charged from £10m to £7m. So if X wins and recovers £100m, BUR takes £30m, pays the lawyers £7m, and the client gets £63m back. If X loses, BUR has to pay its legal fees, which will be about £7m, and they will use that figure to reduce the other sides taxable fees, so probably £5m. So the upside in a case of that sort is £30m, the downside is £12m.

Of course in reality the aim is for the case to settle long before trial, and because BUR has deep pockets their involvement speeds up settlement. So a much more likely scenario is that it settles for say £40m within a few months of BUR getting involved and BUR takes £12m for a commitment of £10m but an actual spend of say £1m.

But the whole point is that the returns are asymmetrical.

[sogoesit] 13/8/2019 14:11

Thanks SK2 for your answer.
I can probably model the chances of bankrupting a defendant as an outcome so that’s good.
However, if I were a lawyer, which I’m not, I would hope that in my screening process I would check the creditworthiness of a target. If I didn’t, someone might accuse me of being reckless, as in any other commercial activity.
But, as I said, I’m not a lawyer.

[sweet karolina2] 13/8/2019 14:02

Matthew Earl
@Lordshipstrade
Litigation Finance permitted words & phrases of the day

Approved (“safe”):
Solvent
Super strong
Buy back
Great quarter
Record results

Forbidden (“makes algos go out of their minds”)
Insolvent
Laughable
CFO married to CEO
Aggressive mark-ups
Non-cash fair value gains
Woodford

[winsome] 13/8/2019 13:57

sk, re your reply to me, I reluctantly agree mostly. But they may raise more private equity such as from the SWF temporarily.

I made a helluva lot of money from BUR and hope to buy back but only when they announce intention to dual list and address board concerns.

As for rumblings about the odd accounting trick, it was Buffett that said 'The only 2 numbers you can trust on any company's annual report are the date and page numbers.'

I want to buy back in because unlike Daniel YU, I find litigation financing easier to understand than pharma, mining risks, big insurance, folding smartphones that don't work, driverless cars that don't drive and taxi companies that will never turn a profit, or utility companies that price fix, pollute water and risk being renationalised. Its a question of what's least risk, not what is a safe bet. And IMO BUR are experts in managing risk.

[sogoesit] 13/8/2019 13:55

So, on a cash basis (I am not “fair value” modelling in my spreadsheet), the downside risk for a success is the same as the downside risk of a failure.
Am I correct?
And we can quantify that?

(I am not really interested in intangible modelling, for the time being, in order to develop a statistical model of outcomes and chances of success and quantifying that. Anyway the market is temporarily arguing about this issue and it could unpredictably change its view. In short, it’s intangible!).
(I might change my view if there is development of a transparent secondary market; eg as might develop from Petersen).

[bbmsionlypostafter] 13/8/2019 13:55

He'd be making more money off BUR than you if that were the case.

[sbb1x] 13/8/2019 13:48

I reckon they work in a boiler room and paid by the hour

[sweet karolina2] 13/8/2019 13:45

Sogoesit,

Extremely valid question, which I doubt even the company could answer even if it wanted to. One of the big concerns is that downside risk is not easy to factor into a fair value model, especially when such risks can and do materialise after an apparent success. "Yes well done you beat us in court, which has bankrupted us, you can join the queue of other creditors wanting money from the liquidators."