Burford Capital Share Discussion Threads

[loglorry1] 10/9/2021 13:14

Then how does it grow it's capital base if it isn't producing any profits. It's not issuing new stock or borrowing (actually the opposite it paid down some debt).

Surely it has to make a profit by settling cases for this to be true.

I'm not short. I was long but sold out at 835p. Posted here when I did. I like the business. I may re-enter.

[tradertrev] 10/9/2021 13:06

Well loglorry if you don't understand the company I suggest you don't buy the shares, but I suspect you are short anyway. Your line of doubt is rather banal. It's investment 101 that a capital intensive business that is growing will not throw off cash.

[prokartace] 10/9/2021 13:01

chart looks especially bad at the moment. Suggestion of dropping to 600p

[loglorry1] 10/9/2021 13:00

@donald you might be right but I can't see the wood for the trees so please correct me.

One of their high line stats was

"Adjusted for non-cash fair value adjustments and expense accruals, profit after tax of $17 million"

I'm not entirely sure what this means but I think it means that the profit they made from their assets not including the non-cash mark to market adjustments was $17m.

You can argue that was down to covid delays but its not much money on $2bn EV is it?

If BUR really was adding 30% to its assets each year then they should be making a lot more profit surely?

I don't understand how they can be growing assets at 30% IRR and throwing off cash as you say but only produce tiny P&L.

I do apologize for being thick.

[donald pond] 10/9/2021 12:50

But log, they do throw off cash, they use it to build an increasingly large book of ongoing cases.

[loglorry1] 10/9/2021 12:24

@Shaklaw they list each of their cases on their website (you have to ask for access).

It won't be any good though if they just keep marking up the value of the cases and argue that they are closer to completion.

This is basically Muddy Waters objection. If cash is never really generated and its always argued that a growing number of cases get ever more valuable without settling and costs increase as well as the business grows - how can we ever really be sure if this 30% IRR is real.

There's not many businesses that can grow assets at 30% IRR with fine gross margins without throwing off a lot of cash fairly quickly but BUR seem to manage it :-)

[shaklaw7] 10/9/2021 12:14

We are all aware by now of how complex this particular company is to assess, which is certainly not helped by the lumpy nature of the returns. The one constant we do have is a 30% IRR which has remained consistent over at least the last 5 years.

So taking that, I was trying to work out how to apply that 30% IRR figure to Burford's current position to workout a projected annual sales. Can anyone assist me on what metric that 30% should be applied to? Would that be current portfolio or on deployments this year.

I realise this is very simplistic and in any year a different amount of cases will reach conclusion, however I figure this could give me a rough average for us to project a future trajectory of the company.

[lomax99] 10/9/2021 11:44

Small top up.

[donald pond] 10/9/2021 11:20

Covid has caused big delays, not least because if you want to delay settlement it provides a perfect excuseBut that's over and I agree that the real test will be whether the company starts reporting sharply increasing returns over the next year or so. It looks likely to me

[loglorry1] 10/9/2021 10:43

Easy to blame covid for case settlement delays but I do recall Bogart telling us earlier this year that there wasn't too much disruption in cases that didn't require a jury which was the vast majority of BUR cases.

I'll just annoy bulls if I continue here on this track. I think the market wanted to see better actual real cash generation rather than more markups in the cases. If the thesis holds then there should be a big lump of cash generated soon but for now I'll wait on the sidelines and see.

[donald pond] 10/9/2021 10:34

That's not true. As they said in their call, not one claim was discontinued as a result of covid. If they write an asset up from £10m to £12m because they win a preliminary judgment, and the case is then delayed, it doesn't mean that its value has dropped. Valuation of a case has nothing to do with estimating when the case might conclude.

The fair value adjustments dropped in the last period as cases that had been adjusted upwards settled, and so the FVA was reversed. The issue was that not many cases settled due to covid delays.

[loglorry1] 10/9/2021 10:31

"I don't think there has ever been a reporting period where the fair value adjustments were not conservative"

If this were true then we'd have seen a big lump of cash from settled cases last year and we didn't.

[lomax99] 10/9/2021 10:26

Looking to start topping up incrementally below £8.

[donald pond] 10/9/2021 10:20

the current NAV is cash invested in cases plus or minus fair value adjustments. Over the life of Burford, I don't think there has ever been a reporting period where the fair value adjustments were not conservative.
I agree that a bit more transparency about bonuses would be helpful. It may be that in reality we are invested in a fund investing in an esoteric asset class with something like a 2 and 20 fee structure and a management company thrown in for free. I need to read the report much more carefully to think that through

[loglorry1] 10/9/2021 10:16

Simples - look at cash into the business with the IPO and the equity raise at £18 and current NAV ex Peterson mark plus all divis paid out to date and that gets you total cash returns to date (or close to it)

But the elephant in the room here is the current NAV is not realised cash is it? It is a mark or estimate of the value of cases pending which is not the same thing. Also there was no doubt a lot of value creating early on and we saw a very steep rise in the shares price. How can we be sure that we are still seeing this value creation now?

I realize I may be being a bit thick here but why can't BUR just tell us how much cash in the form of cases settled from their book has been created in the past year? From what I can tell the answer is not very much at all particularly when you subtract a lot of the costs like the extra bonuses which are being paid.

[donald pond] 10/9/2021 10:15

In another place I see Argentina are trying to get big miners to go after potash. It may be that at some point they realise that their actions in respect of Petersen are increasing their costs elsewhere, and settling might be in their own self interest. hxxps://www.businesslive.co.za/bd/world/americas/2021-09-09-argentine-province-woos-investors-for-potash-project/

[kiboshh] 10/9/2021 10:14

You heard well but those receipts are from the Akhmedov's receivables which where monetized after H1 cutoff. Hence cash receipts already higher than those in H1.

[brileyloucan] 10/9/2021 10:06

I have a large investment here and also a big position in LCM which I increased yesterday. I would actually make it bigger but am struggling in sizing the future value.

Looking at Burford only we have $3bn portfolio value (includes deployed cost, fair value adjustments and undrawn commitments). If I knock off the Fair value changes of $900m to give drawn and undrawn commitments of $2.1bn and assume 85% of this gets deployed in line with previous cases we are talking ~$1.7bn and with a 95% ROIC we should see cash in of ~$3.2bn over the next 3/4 years (which will be reinvested). Obviously we have operating expenses coming off this but I've also ignored the asset management business.

That feels like quite a lot of business for a market cap of $2.5bn. Am I missing something?

[syoun2] 10/9/2021 10:02

Did I hear on yesterday’s call that cash receipts are already double from what they had first 6 months or was that something else?

[williamcooper104] 10/9/2021 09:52

Simples - look at cash into the business with the IPO and the equity raise at £18 and current NAV ex Peterson mark plus all divis paid out to date and that gets you total cash returns to date (or close to it)

[lomax99] 10/9/2021 09:27

Case length averages have nudged up thanks to covid, however with the significant build up in investment in recent years this should, hopefully, start to pick up shortly.

[donald pond] 10/9/2021 09:13

Over $1bn cash generated to date. Doesn't seem too shabby for what was a small start up in a nascent industry

[loglorry1] 10/9/2021 08:46

So where is the cash generation then. All I hear from BUR is spectacular ROI over many years but there really should be more cash generated from settled or completed cases by now.

[tradertrev] 10/9/2021 08:39

Buying Gerchen Keller was transformational at a time when this industry was still nascent. Overnight they became the global #1 by miles and added intellectual capability in scale - the combined team (together with further recruitment) has enabled the company to add new business at a run-rate in excess of $1bn p.a.
The returns from that acquisition have been substantially greater than simply the fee margin from the business acquired.

[reubion] 10/9/2021 00:18

@lomax99: In my (very amateur investor) opinion, I do not understand the excitement about the asset management business and the waterfall fees. As far as I understand, they acquired Grechen Keller for $ 160 million in 2016. Total fees from asset management from 2017-2021 are 94 million and expected waterfall fees from Partners II and Partners III funds are only $ 50 million (page 24 of the interim report). Given that combined AUM for Partners II and III is $ 701 million, that seems like underwhelming returns.

Sure, future revenue streams from asset management are worth something, but on the other hand, I hate that they only had $ 57 million balance sheet investments in 2020 and the rest allocated to funds, which will bring in much lower returns. It would be a different story if they would be lacking funds for profitable balance sheet investments that they could allocate to the funds instead, but they are paying out dividends, buying back bonds and sitting on cash. What am I missing?