Burford Capital Share Discussion Threads

[maddox] 06/5/2021 10:32

BUR's operating expenses in 2020 were 2.4% of their Investment Assets and increased only 6% on 2019, so yes I've ignored them. The legal costs of pursuing the cases in which BUR invests are included in the Invested Capital and thus included in the ROIC and IRR metrics.

The more interesting question is what multiple of it's B/S BUR should be valued on and how do you rationalise that multiple?

I reckon between 2x - 3x that would equate to doubling of assets in 5 or 7 years - a very attractive growth company investment proposition. This would equate to a share price of £20 - £30.

So, what do you reckon?

[pymadams] 06/5/2021 10:00

If you're using net profits should you not be comparing them against the balance sheet value of 2 years ago? (average length of case turnaround)

[loglorry1] 06/5/2021 08:37

@William if that was the case why would the p/e be so low. If they make 30% on book value (of own assets) and the market cap is around book then the p/e would not be sitting at 15x. I accept this is rough since cases are marked up as they near completion etc.

[williamcooper104] 06/5/2021 08:34

It's gross of G&A expenses so you are right that you need to add that in But it's also an unlevered IRR - from memory when I last looked at it the extra costs and the leverage benefits roughly cancelled each other out - such that the post G&A leveraged IRR - which is the best actual measure of shareholder returns, was around the same as their reported IRRs

[loglorry1] 06/5/2021 07:28

Yes there's a lot of costs to take off the gross return on the litigation book and some profit to add back from the fund.

As the litigation book grows this should provide some operational gearing as costs wont rise as quickly as gross profits.

As a rough guide you can look at net profit as a proxy to the real returns shareholders should see on the book. Last time I looked it was around 15%.

[papy02] 06/5/2021 06:47

Hi Maddox.

Agree, but I think ROIC and IRR as used by BUR means at Gross Profit level. We need to deduct operating expenses to get the actual returns they are making as a business.

I found that tough to do (not an accountant), but satisfied myself that the “net IRR” is north of 20% pa, which is still good.

[maddox] 05/5/2021 22:46

Hi Kirkie,

Not all B/S assets are the same, some assets generate far more returns than others. Looking at the latest BUR report for Fin Year 2020:

>> $4.483bn of invested capital (65% own b/sheet = $2.929bn);

>> Consistent track record of 90+% Return on Invested Capital (ROIC) or c.30% IRR; and yet,

>> Market Cap of $2.8bn(£2.01bn).

So currently, Burford is valued at only 95% of its own balance sheet, ignoring the additional funds it manages; but generates outstanding returns on that capital. If those returns are maintained it should double its invested capital in 2.4 years on average. What would you be prepared to pay for asset that doubled on that timeframe? I'd say that it is far more than the current valuation - and I'd very much welcome others' suggestions as to a fair multiple factoring in the uncertainty of realisations and other risks.

Regards Maddox

[jonwig] 05/5/2021 15:00

Kirkie - almost all "modern" companies have low tangible assets, huge intangibles: goodwill, customer relationships, brand value, etc. How are these given an accounting valuation?

Deliveroo, for example, could boast its market IPO valuation using all sorts of assumptions about its worth, which were tested once the market opened. Its "book value" was fiction.

If you compare this to BUR, how do we perform? A few years ago I remember they had never reduced fair value on any case by the time it was resolved. (It might have done more recently, I'm not up-to-speed.) I'd go so far as to say that their fair value calculations are prettyy robust. This means they can be inaccurate but trustworthy, if you see what I mean.

Certainly I prefer an accounting method which forces the company to reassess its portfolio twice a year, against a company which values at cost and updates only on resolution: the guys in the office know full well how their cases are going but aren't telling us! (LIT.)

[kirkie001] 05/5/2021 12:07

LazG - I don't know any kind of company that holds assets (which Burford does) that would trade on any kind of multiple anywhere near 2-3x book (which isn't book, it's some kind of "fair" value) to price ratio.

What are your comparator companies out there that are similar?

Cheers
K

[lazg] 05/5/2021 11:30

Chester, I totally agree with you. It is not unreasonable to value the book at USD 10bn (I don't believe the accounting principles do this asset class justice) and to have the growth and potential lead to an 2-3 book to price ratio, which corresponds to a market cap of USD 25-30 billion. At 219 mn shares thats a fair value of up to USD 116-137.

Who knows what catalyst will be required for the market to notice, but I am holding far past GBP 15.

[tnt99] 05/5/2021 09:49

And to all my Reddit followers woo woo catch the burford express to 15 pound land woo woo!!

[tnt99] 05/5/2021 09:35

Thanks for the reply chester I have a lot invested here all purchased at around the 5-6 pound mark so I believe I should do well it seems others on this site don't respect my opinion however it seems we are aligned in our belief I probably will sell at 15 pounds though

[chester9] 05/5/2021 08:41

This is the only share I own which gives me no negative thoughts. Yes they can lose YPF , yes they can lose Congo but win one and the value to Burford is at least 50% of current share price if YPF case settled then share price £15. In coming years we will not see the many other cases they win. We do know they have the money and talent. I see this share price going one way only for 3-5 years when it may be toppy at £50. This is a winner, after that I suspect I will still want to hold my money in Burford.

[time_traveller] 04/5/2021 20:20

Oof, if you think Argentina would try the patience of a saint, try Congo and Cameroon! TIA!

[tnt99] 04/5/2021 20:06

So Chester do you agree with me this shares true value is 15 pounds and the stars are aligned to reach this level in good time

[desk100] 04/5/2021 19:05

Sorry meant Bogart

[desk100] 04/5/2021 19:05

Bestace, maybe they should but they just don't, listen to any of Molots webcasts if you don't believe me.

[galatea99] 04/5/2021 18:16

Sorry, I hadn't noticed the earlier references above to the same case.

[galatea99] 04/5/2021 18:12

There's a report here (in French) of Burford financing a claim by an Australian junior mining company, Sundance Resources, against the Government of Congo (and eventually also the Government of Cameroon) in respct, it seems, of the apparent dismissal of Sundance from a project to develop an iron mine on the Congo-Cameroon border. This is Congo-Brazzaville, the former French colony, not the DRC-Kinshasa. The claim is stated in the article to be for US$8.76bn and the claim is reportedly now being arbitrated under ICC rules in London. The article seems to imply that Sundance were taken out of the project which was then taken over by Chinese interests.



Oh sorry, I've found the text in English. Here you go:

[bestace] 04/5/2021 17:50

Burford have sometimes likened their approach to that of venture capital investing so surely they should be taking some longer shots (in the probability sense) if the potential upside is big enough to offset the increased risk of losing?

[loglorry1] 04/5/2021 16:54

I was referring to the time it may take for an outcome more than the probability of winning or reaching a profitable settlement.

[desk100] 04/5/2021 16:51

log lorry - Burford don't do long shots, if they invest in a case its because they think they will win eventually, see their annual report.

[williamcooper104] 04/5/2021 10:55

Totally If Peterson's a big win then having more big game in the pipeline will do wonders for the equity story Pull back had to happen at some point after the rise we've had

[loglorry1] 04/5/2021 10:24

Always good to have a massive long shot in the hopper though.

Pull back today looks like a bit of profit taking after a big run up. Looks healthy enough to me.

[donald pond] 04/5/2021 10:23

That's potentially as big as Petersen. Not sure how easy enforcing against the Congo is but there you go