Burford Capital Share Discussion Threads

[tnt99] 07/5/2021 18:21

Yes all great news directors bought in capital raise oversubscribed profits up future bright true value over 15 pounds jump onboard before your left behind

[george stobbart] 07/5/2021 17:24

whys this ponzi scheme going up? any news?

[tnt99] 07/5/2021 13:26

The only way is up baby! For u and me now!!!

[lazg] 07/5/2021 13:09

I have set myself two alarms: for in one year and in 2 years.

In the alarm I have copied a few of my last posts. Regardsless what happens, I think it will be a learning experience for my future self to see what I thought today. Hope my future self is happy with me :)

[williamcooper104] 07/5/2021 12:50

Yep - that's makes sense Peterson = £5 at least (of course there's still risk there) A Peterson win, particularly with another big sovereign case on the books - would cause a re-rate above trend FV - just as a Peterson loss would push the share price below FV So £15-20 in next 18 months isn't unreasonable (IMO)

[lomax99] 07/5/2021 12:09

£15 will be a breeze with the right Petersen outcome......

[loglorry1] 07/5/2021 12:00

I think that's fair Kirkie

[kirkie001] 07/5/2021 11:49

The last 20 odd posts on valuation methodology have been interesting and thought provoking.

Personally, I think that we're probably above current "fair value" on the investment book at a price of £9 per share. I don't think that this trades on much of a multiple over fair value unless you've got a track record to other evidence of one or more of the following:

- consistent record of realised gains NOT being reversed in future years;
- "annuity' style streams of future income (ie management fees from the funds);
- a demonstrable record of winning cases more than they're losing on a portfolio basis;
- cash conversion of settlement amounts to cash on a "timely" basis (and yes, I know that their business model is partly to try and go for these illiquid type situations), and no significant history of bad debts
- sustained delivery of their IRR targets demonstrating no weakening of their underwriting criteria

Of these 5 points; I'd say that the third is demonstrable from their record; the first is in the process of being demonstrated; the fifth is "Work in progress' but remains to be seen for more recent vintages - and 4 is one of the hardest to demonstrate (but with every year becomes better), and 2 is for this year and the future to show.

Delivery on these 5 points would be my catalysts for rerating onto a multiple of fair value, rather than just a "fair value plus Petersen" (which is basically what it currently is). But I don't think you get to anywhere like 2-3x FV - I'd be thinking that 1.5-2x would be more realistic.

I am, however, not really basing that on much other than my wet finger in the wind...

Or - another way of looking at it - if I think FV is around £7.50 per share; then I'm thinking current price is maybe reasonably full, but I have a year-18 months' price target of £11.25-£15 per share?

[tnt99] 07/5/2021 11:47

Growing mountain certainly join the climb to true value of at least 15 pounds just ask the boss

[loglorry1] 07/5/2021 11:36

Maddox show me an advfn thread where the posts aren't predominantly uber bullish?

Cash conversion of cases will be king here. The rest is largely noise. I don't know if we are at fair value here or £10 higher but I know the market will sit up and listen if they convert a lot of the book to cash at higher than booked values.

[maddox] 07/5/2021 11:27

Hi loglorry,

It really depends upon your investment style. If you are a fundamentalist investor as I am understanding of a stock's value is key to making an investment decision. On the other hand the current price is driven by the balance of sentiment between buyers and sellers. But I'd suggest that a large proportion of both buyers and sellers will have a view on whether the shares are under or over-valued.

When the disparity between share price and value is as wide as it appears from our recent BB discussion - it makes for a pretty compelling investment case - even if you factor in a healthy degree of discounting.

Regards Maddox

[lomax99] 07/5/2021 07:59

Yes, and there’s a growing mountain heading for conversion.

[loglorry1] 07/5/2021 07:56

We can all make up new ways to value BUR but it's largely pointless if the market doesn't agree.

Converting cases to cash is key. That's what will cause a rerate. That's going to take time.

[lazg] 07/5/2021 01:23

Maddox, this is exactly what I was thinking as well.

While I really like how conservative Burford is with its estimates the unusually long time between investment and return is hard to capture on a YoY basis.

Accounting principles are meant for normal companies. What BUR needs is a five year accounting period.

Most companies buy input products and sell them within a reasonable amount of time, so YoY is fine for them.

Can we maybe look at how pharmaceutical companies are valued for inspiration? They too make long term investments (in R&D) with uncertain lumpy returns (when and if a cure is found). Happy for people to explain to me how to value pharmaceutical assets.

Burford should be valued like a pharmaceutical company with genius researchers that find a cure 80%+ of the time they try.

One final comparison: If a car company could buy aluminum and steel for $ 200 and sell a car made from those materials 5 years later for $ 10.000, and they were buying more steel and aluminum every year, it would be easier to understand that what is intersting is the multiple, 50x in the example.

If the car company bought steel and aluminum for $ 500 in year 2, you would think they will make 25k in year 6. And so on.

Surely, you would value such a company not on what sales it made in year 2, but you would want to estimate the discounted future cash flow. I am still unsure how to estimate the multiple correctly though.

Thanks Maddox for sharing your thoughts, very helpful indeed. I think we need to take into account interest and opportunity costs for the money sitting there for a long time, but still.

Alsp, I think I need to learn more about company valuation methods, if only to put my thoughts into more coherent words.

[maddox] 06/5/2021 23:56

Ok just thought of one adjustment. We are still carrying YPF in the portfolio at a mark-to-market valuation of $773m. So, lets take that out and it brings it down to c. $16bn.

[maddox] 06/5/2021 17:19

Hi LazG,

Like your thought process. Yep, the Investment Asset portfolio cases undergo a re-valuation process as they mature.

As Burford are very conservative, and the portfolio of cases has been rapidly expanding (52% CAGR) - most will be young and mostly valued at near cash cost invested. Where there is an objective event, a court judgement, step towards settlement - this will cause a revaluation.

In the b/s at the year-end there were 41 cases amounting to $183m in unrealised gains (excl. YPF) that were 'widely distributed' a large increase on the previous year of $38m (excl. YPF) - this as a result of the FY20 year-end revaluation process.

However, we also know the realised gain on case conclusion is substantially more than the value held at the previous year-end prior to its conclusion. If the concluded realised gain value is taken to be 100% then the prior year-end valuation is typically 19% on average, and between 2% and 4% for 5 years to 2 years prior to conclusion (p14 FY Results pressy).

This suggests, based on some rough averaging you could see the potential realised future value of the current Investment Capital being 8x its current book value. Taking BUR's ~ $3bn invested capital would generate an eye watering $24bn!

Surely, there's a fault in my logic?

[loglorry1] 06/5/2021 14:24

I think that's basically done for us in the latest presentation which shows cash in vs cash out returns. It's about 90% total at around 30% IRR. Peterson skews it a bit but no so much now the whole book has grown a lot.

I agree though that we should be trading at a multiple of book if cases really do throw off this much cash.

[papy02] 06/5/2021 13:42

Thanks all for some brilliantly educational posts - lot to think about

[lazg] 06/5/2021 13:39

loglorry: I am not really claiming this to be true. It is good enough to not sell at current prices, though..l

Anyway: maybe we can inch forward together. I think what may be doable is looking at the initial book value Burford attributed to a certain vintage that is old enough to be mostly finished. Then we could compare that to the realised cash out of that vintage. If wie compare both lets call them book and "hindsight book", we should get a ratio/multiple. We could then use that ratio/multiple on the curren book value per vinatge as a percentage of completion of that vintage to get a better estimate.

Do we have this data? Would that method be flawed?

[williamcooper104] 06/5/2021 13:19

I've a commercial real estate background (mainly developing) On Litfin though I'm just guessing along with everyone else

[loglorry1] 06/5/2021 13:04

LazG I would love this to be true but if it were then in say the last 6 months you'd expect say 20%if that book value to have settled as cash (as cases mature 3yr ave?). That's $2bn of cashflow from settled cases. We haven't seen that.

[lazg] 06/5/2021 12:37

When reaching my valuation, I have made it a two step process:

1. What is "book" for Burford? I do not believe that the accounting principles that determin the book value are really relevant in the lit fin asset class. Therefore, I have based my "fair book" valuation on a proxy for book. In its most basic form the book value is the total value that shareholders of that company would receive if the company were to be liquidated.

If they sold all of their assets to another lit financer they would get far more than what their books say. One example is Peterson. 38.75% of Peterson was sold for $236 million. That is 10x what they paid for 100% of Peterson. As the other cases aren't sold during maturation and their fair value is not usually updated, there is a lot of untapped "fair book" value imo. I would love to see someone trying to do the math on older cases to find out how much difference there is. For my purposes I just think it is "a lot" (maybe not 20x like in Peterson, but it should be significant). It is not unreasonable to assume that the assets could be sold for $10 bn as is. Happy to see someone tweak that number.

2. Step two: Burford is not beeing liquidated, on the contrary. Its dynamic. Brexit and Covid will lead to a lot of litigation and Burford will be in the thick of it. They will grow and they are the market leader. Also the whole lit financing market is booming. Well in that case a 2.5x-3x book valuation does not seem crazy.

The rest is maths:
10^10*2.5/(219x10^6) = USD 114
10^10*3/(219x10^6) = USD 137

[scubadiverr] 06/5/2021 11:54

Some good posts today.WC do you work for a fund? Your knowledge here and in real estate appears well above the norm.

[williamcooper104] 06/5/2021 11:15

The funds are subject to heavy carry - 30 percent from memory over 8 or 12 IRR The funds haven't always invested their funds at par - eg one of the funds bought part of the Peterson claim realising a large profit for Bur The funds become advantageous if Burs book to price/PE becomes a bit too rich Also advantageous if you don't want to see the equity beta/daily mark to market - which is attractive to a lot of institutional investors - but IMO is less important for a private investor (you get less mark to market vol in a fund but much greater liquidity in Bur equity)

[maddox] 06/5/2021 11:02

Hi loglorry,

Again, Finance Cost in 2020 are 0.8% of Invested Assets - so yes I've ignored them.

All the Lit Fin firms are very poorly rated - or extremely good value, dependent on your view point.

BUR reap management and performance fees on-top of the Fund's ROIC - so difficult to argue that the Funds capture more of the ROIC?