Burford Capital Share Discussion Threads

[dgdg1] 03/9/2019 15:13

Sorry and I forgot to mention TW's killer argument - that the fact that Burford is supposedly arranging these analyst reports which are so positive is itself a major red flag!

[dgdg1] 03/9/2019 14:45

TW trying to dismiss the Liberum note, his main arguments are that you can't believe sell-side analysts because they have vested interests, they didn't see his response to the Burford Napo explanation or his latest report about the Gray case (which doesn't seem to include anything new, Burford has already responded to it by saying theere is no present court case and it wouldn't have merit anyway, so I really can't see what the scoop is), and it can't be right to have a price target so much higher than the present price as the market can't be out by 300%. The last argument is ridiculous (he is after all the one who often says shares are worth zero when the share price is not zero, how many hunderd percent out is that?). As for sell-side analysts being biased, there may be something in that sometimes, but there is a distinction between putting a nicer gloss on something than is warranted which is feasible, as opposed to writing a really detailed report comprehensibly disputing MW, where there really would be reputational risk if they got it wrong. Also interesting that TW doesn't actually address any of the real issues and points made in Liberum's lengthy report.

[cy8] 03/9/2019 14:40

Yes adnan, it was your analysis who throw light on the Napo vs Glenmark case.TW has been posting on his website and podcasts that it was him.I think all investors should write negative comments on his Twitter account to expose him for the fraud he is. Question his credibility which is what he uses to get subscriptions.Be a bear to a bear!

[pete_bane] 03/9/2019 12:09

Fantastic stuff provided with stunning honesty, mate.

[yidarmytom] 03/9/2019 11:57

Detailed assessment of Muddy Waters reports:-
We have previously summarised our analysis of the points discussed by Muddy Waters. In this section, we provide a more detailed assessment of each of the points raised in the reports, outline Burford's rebuttals, and give our analysis.

“Fair value accounting is being used to inflate the value of the company”
Muddy Waters: “Thanks to a light disclosure regime, the esoteric nature of its business, and unethical behaviour by its largest shareholder, Invesco, it turned Enron-esque mark-to-model accounting into the biggest stock promotion on the AIM. This has all recently changed though. Just this year, BUR began publishing more detailed investment data. This data proves that BUR has been egregiously misrepresenting its ROIC and IRRs”.

Liberium view: As the company said on its investor call arranged immediately following the publication of the first MW note, it provides IFRS financials as well as cash-based investment performance information. They have provided these cash-based performance figures for the 10 years Burford has been listed.

It seems fair to us that, if you have sold a 10% interest in a matter at a $1bn valuation, you carry your remaining interest at above the $17m you originally invested. We note that it is common practice for private equity firms to use fair value accounting with Level 3 assets in a similar manner. The company stated in its 2017 annual report that only two investments that had been written up, amounting to 0.2% of total write-ups by dollar value, have ever turned into a loss.
An outline of the fair value adjustment process is given in great detail on pages 58 and 59 of the 2018 annual report. A fair value write-up is only made if there has been an external objective event to justify such a write-up, and many investments will not have a write-up through the entire life of the case, as only one judgement will be made.

In the same report, the auditors detail their work:
• For all investments where there had been a change in fair value, the auditors tested the assumptions, performed external research on the status of litigation, obtained supporting documentation, considered any relevant secondary market trading and challenged management’s judgments.

• Independent counsel was hired by the auditors to check the company’s valuation process Burford is a complex business, and the company reports are necessarily long, but this auditors’ report is essential reading.

[williamcooper104] 03/9/2019 11:48

Isn't the best way of building base case future return projections to look at the mode average of past cases The 52 percent uplift from cash to carry value is a little scary Most of its Peterson - Peterson valuation is backed by third party sales - so the accounting is likely to be robust But the Argentinian exposure is large and a little scary Which is probably behind recent share price falls

[george stobbart] 03/9/2019 11:41

yidarmyTom is a desperate BUR bagholder

[yidarmytom] 03/9/2019 11:34

“High dependence on four cases”

Muddy Waters: “BUR has been highly reliant on only four cases for its monetizations, showing that its broader portfolio has lacked strength. Through manipulating ROICs and IRRs, BUR portrays itself as a business that derives profits from a broad range of cases in its book. The reality is that BUR’s profits are much more concentrated, and have really been dependent on just four cases that have generated approximately two-thirds of its net realized gains since 2012. We calculate that during this time, the remainder of the Concluded Investments generated a combined ROIC of only approximately 19%.”

Burford: “If one were to remove (nonsensically) our best four results and all non-cash realisations, Burford’s litigation finance returns would still be 33%.”

Our view: This is obvious. The company had already disclosed returns ex Petersen and ex both Petersen and Teinver. We wrote about this on 12 July. In our view, this analysis only has any utility if one believes that the business of litigation has changed such that Burford will never again make outsized returns. We have seen no evidence that this is the case.

“Burford deliberately misleads investors with net realised gains”

Liberium view: In the original note, MW stated that BUR misleads investors about its fair value accounting by conflating two distinct concepts: realized gains and net realized gains. We believe that the two concepts have been known to investors and that the flow of investments shown on note 7 in the 2018 annual report correctly reflects the movement in investments held on balance sheet.
The process was again explained in detail in the 30 May RNS re Teinver. It may well be that this is in some places not understood, but that happens when a company lacks similar quoted peers. We see nothing to support the idea that this disclosure is designed to mislead.
On the investor call, management disclosed that fair value mark-ups represented 52% of the carrying value of investments at the end of H1'19.
This number is for core litigation finance only, and we note that Petersen is likely a significant part of this. Whilst some might see this as a risk, we note that 40 investors have now helped Burford de-risk the Petersen case and help to validate its valuation.

[yidarmytom] 03/9/2019 11:34

Technique 1: “categorizing a loss as a win”
Muddy Waters: “BUR first disclosed Napo as a “Concluded Investment” in its 2013 Annual Report, and claimed a total recovered of $15.8 million on a $7.4 million investment, which was purportedly a 113% ROIC. However, the case had not yet concluded. It reached a jury verdict in 2014, and BUR’s client, Napo, actually lost the trial when the jury returned a verdict in favor of Salix.”

Burford: The initial rebuttal stated “The Napo investment did not come from Invesco. We got our principal back in cash and then some equity in the company which has been marked to market. When we thought the equity would have no value we wrote it off.” Subsequently, the company has given a 3500 word disclosure of the Napo investment which explains why the case became classed as a concluded investment in 2013, and gives the carrying values of the investment at each date.

Liberium view: MW’s analysis is of the wrong settlement, and there was a settlement in 2013 (see link on left). In return for its work on this case, Burford received its initial investment in cash, plus shares in a quoted equity.
Recording this receivable in the context of a concluded case seems reasonable treatment to us. The fact that the value of this equity holding later fell in value is a separate and later issue and was clearly highlighted in the 2019 interim report on page 8, note 6 and on page 24 of the 2017 Annual Report.
Wrapped up in the criticism of the accounting treatment of this matter is an allegation that Burford somehow conspired with Invesco to get them to invest $3m in a Napo capital raise. This seems to make no economic sense for an institutional investor, nor career sense for a portfolio manager. In any case, Burford was a secured creditor and Invesco an equity investor.

The MW comment of 26 August highlights the Glenmark case, which is linked to Napo. MW does not suggest Burford did not receive a settlement in the form of Jaguar shares, rather they suggest that, given that the shares have since fallen and the position of Jaguar three years later, it must have been obvious that the shares were worthless at the time. This is a different
argument to the initial MW report, and so, as we have stated, reporting a settlement of quoted equity seems reasonable.

[yidarmytom] 03/9/2019 11:33

Burford’s RNS of 2 September gives much new detail on the investment, including that:

• In 2011 $1.5m had been spent on funding Napo and this was the carrying value. The funding agreement included a dispute between Napo and Glenmark as well as that with Salix.
• In 2012 there was a tribunal interim decision which led to Burford increasing the carrying value to $9.4m (of which 4.5 was the deployed cost, the rest an unrealized gain.
• In 2013 the concluded investment table had Napo in at a 50% discount to the value of the minimum entitlement
• In 2014, after becoming a senior secured creditor to Napo, the concluded investment table had Napo in at a 30% discount to Burford’s entitlement
• 2015 no change to carrying value despite a running 18% interest rate on the credit
• 2016 no change to carrying value despite the entitlement rising. Discount at which it was carried was then up to 58%.
• 2017 Napo is now an equity holding in Jaguar. IFRS accounts are marked to market, but the concluded investment table was not, since it is not a mark-to-market document.
• 2018 IFRS accounts are marked to market, but the concluded investment table was not.
• 2019 Jaguar holding written down in H1. ROIC shown as 18%, but would be 27% if including the sale of some Jaguar stock in 2018.
It is important to remember that the short report attacked Burford's treatment of the Napo case as "Categorizing a Loss as an Investment with Significant Return”. This was their #1 accusation. This new disclosure explains that this was precisely not the case, in that the investment was not a loss, and that it was at all times subsequently carried at a substantial discount to Burford's entitlement.

This case is only 0.8% of Burford's recoveries at its current carrying value, so is a small matter from a September 2019 perspective, but these disclosures also make clear that even from a 2012 perspective, there was process and
prudence behind its valuation.

The RNS is explicit that the reported ROIC (balance sheet, since inception) of 76% at the end of 2017 and 85% at the end of 2018 would have been 1pp and 2pp lower, respectively, if the Jaguar holding had been marked to market.

[yidarmytom] 03/9/2019 11:33

indeed adnan, you did, but most of Tom's scoops are regurgitated and nicked from others - I've never seen him issue a note like MW, he just doesn't have the intellect or the gravitas so just picks up on others ideas - why people pay £6 pm for that is anyone's guess

here's a nice snippet of some Liberium's views issued today

Technique 2: “counting as “recoveries221; awards or settlements with uncertain to highly unlikely collections as equivalent to cash returns when calculating IRR”

Muddy Waters: The essence of this argument is that Burford's client in a 2009 case received land in settlement. IRR was reported as 51% in 2013 and then 47% later. MW contends that an appeal is ongoing and that final recoveries remain uncertain, intending that the reader believe this is both negative and typical.

Burford: From the investor call: “We’ve had $1bn in proceeds and right now have less than $1m of non-cash proceeds on our balance sheet. A matter is only ‘concludedR17; where there is no litigation ongoing, nor any appeal.”
From the response: “IRR fell from 51% to 47% owing to the timing of payments. ROIC rose, but MW does not mention this."

Our view: The case highlighted by MW has been a concluded investment since 2016 interims, in which report it was discussed. The company is clear that “It is false that Gray’s bankruptcy estate is suing Burford. Gray itself did bring an attempted shakedown action against Burford in Arizona; that action was stayed and Gray has not attempted to pursue it elsewhere”.
Although the fact that not all realisations are cash may surprise some investors, the magnitude of those that are not does not in our view present a significant issue. If the best a shorting report can find, in suggesting that recoveries are questionable through not being 100% cash, is a single investment from a decade ago, we would argue that this has not been shown to be a material concern. Ultimately, management has proved that it has been able to achieve attractive risk-adjusted returns for investors from such moves.

Technique 3: “misleadingly representing investments that BUR inherited from acquisitions as favourable IRR”

Muddy Waters: Muddy Waters suggests there is a case which came in with a corporate acquisition and where the company booked returns which do not include the acquisition cost.

Burford: “The investment cited in the report is a post-acquisition matter. The report is simply wrong in its facts".

Liberium view: It would appear that management have provided the correct cost figure for the cash-on-cash investment table, whether the cases were acquired or not. In the specific case highlighted by MW, it would appear that they have referenced the wrong case number.

[adnan17] 03/9/2019 11:25

Erm excuse me, but it was me on this group chat that first posted about the Napo V Glenmark case. So why is TW saying he discovered the Glenmark case? Blatant lie.

[george stobbart] 03/9/2019 11:01

This Ponzi scam will go bust anytime soon

[kemche] 03/9/2019 10:56

Smithy, are you averaging down?

[tsmith2] 03/9/2019 10:13

Lo and behold - you have a claimant and a defendant and they have very differing storiesGenius

[tsmith2] 03/9/2019 10:09

And you've read them already and formed an unbiased view already

[yidarmytom] 03/9/2019 10:07

yidarmyTom, bbmsionlypostafter, sweetkarolina2, Chimers, they are all me posting from my Greek hovel
Worst Regards
Tom W

ps. please subscribe, only £6 a month

[wardy333] 03/9/2019 10:05

More rubbish from S/P. Not working today.