Burford Capital Share Discussion Threads

[williamcooper104] 09/3/2021 17:18

Also between now and when/if Peterson is lost NAV is likely to have increased - not unreasonable to assume it won't be for a year and NAV could have grown by 20 percent in that period such that the NAV at the time of losing P could be around £5 So a P loss likely to lead (IMO) to a longer period of sideways trading, with a maybe 10-20 percent dip on the loss On balance, I think there's more upside than downside

[williamcooper104] 09/3/2021 17:11

I was getting about £3.80 NAV on a lose - though that doesn't include whatever else they spend before losing

[trevor777] 09/3/2021 16:23

Lose NAV £3.5/share
Win NAV £12-16/share

[whilstev] 09/3/2021 15:50

Is there any genuine way to value Burford on the basis that they lose the Peterson /Eton Park cases. What would be the underlying valuation for Burford on that basis? That seems to be the problem . If it is say £12 a share then they would be a screaming buy but if it is £3 then they are to be avoided. If anyone can come up with a genuine answer then I would love to know it.

[rar100] 09/3/2021 14:58

Burford Capital - It Still Doesn't Quite Convince Me
Mar. 05, 2021 9:00 AM ETBurford Capital Limited (BUR)BRFRY14 Comments1 Like
Summary
Burford Capital was subject to a hard-hitting Muddy Waters short-selling report alleging inconsistencies in profit realisation.
The stock dropped like a stone and management insisted they would do things differently and they do seem to have done so.
The end result looks impressive but it still just doesn't quite convince if I'm honest about it.
Burford Capital (BUR) and litigation finance
There's no absolute reason why financing legal cases shouldn't work as a business plan. Going to law in a complex case is expensive. Commercial cases can be about considerable sums of money. So, there's every possibility that there's room in there for someone to finance cases in return for a piece of the recovery.

This being the business Burford Capital is in and as I say there's just no reason at all why there shouldn't be someone successful in this space. The second question though is whether these are the people who are going to be so.

Muddy Waters
It looked like Burford was being successful in this space, the stock was up at around £20 on London's AIM market (the junior part of the London Stock Exchange) at one point. Then in came Muddy Waters with a short-selling report and it's fair to say that they weren't the only people with the occasional question about how the firm was really doing rather than how it was reporting it was doing.

The stock slumped as a result and hasn't, really, recovered since then. This leaves open the obvious question therefore – should it have done? If the management has changed what was previously perceived to be at fault and is also reporting entirely reasonable returns then perhaps the stock should be "re-re-rated" back upwards?

This is not something that has an absolute answer. It depends upon what everyone else thinks about the stock for a start, so we're trying to second guess other peoples' actions. The best we can do is try to come to some view about the stock ourselves, take our preferred actions and then hope that everyone else catches up with us at some point.

My answer here is that I'm not, as yet, persuaded and so am not going to take a position as yet.

The problem identified
The basic problem identified was that Burford was recognising revenue too early. Or perhaps when it was too uncertain.

Commercial court cases can take many years to come to fruition given the possibility of appeal and so on. Even one level of a case can take months to years to a verdict. Costs and expenses of course flood out in a stream. But revenue is only going to come, actually arrive, at the end of this process. Thus there's going to be – not really whether there should, there just is going to be – some recognition of revenue before it actually arrives. Everything from we think we'll get a bit back here through to we're really very sure that this case isn't going to be overturned on that last-ditch appeal so we can pretty much say that the cash is in the bag.

Exactly how each piece of revenue is allocated to which part of that process is going to be much more of an art than a science. This means that it's also arguable at any and every point. The Muddy Waters allegation was that revenue was being recognised much too early.

That, in itself, isn't all that much of a problem. But the continuation of the claim was that this led to revenue being overstated. That is, not so much early, as with too great a certainty. That revenue recognition then led to sums that might not actually arrive in the end being declared as profits, paid out in dividends and thus hollowing out the capital base of the company.

This led to a significant fall in the share price:

Burford

(Burford Capital stock price from London Stock Exchange)

That drop from 1500 to 700 in the summer of 2019.

As we can see no one's been terribly excited by the company since. The London all share index is up perhaps 30% since summer '19, Burford is down 25% since the same point in time (calculations by Eyeball Mark I, no more accurate than that).

So, what's happened since then?
Well, the management has promised to be much more careful about revenue recognition, of course they have. In the latest results we see a certain insistence upon actual cash receipts rather than just revenue recognised that might then be received:

Burford had the best year in its history for portfolio performance, generating record levels of realized gain and more cash from successes than ever before.

Quite so, realised gain not recognised. However, there are still two things that worry me.

The US quote
Burford is now quoted in the US as well, starting last fall:

Burford
(Burford US quote from Seeking Alpha)

That's a secondary quote but a one on the full NYSE. And we'd rather expect a company dealing in US litigation (largely at least), reporting in dollars, to do well on a US market. That would be rather the point of having that quotation. But it seems not to be happening.

My read of this is slightly cynical. Litigation financing is not really a well known thing in England, in English law, or the English market. It's, as far as I know at least, much more common in the US. So, we might expect a more serious valuation to be applied by a US market to the same stock.

Even if that is too cynical I do take it that the lack of a bounce following the US listing is not a good thing.

The big case
The other thing is that Burford really does rely upon just a couple of large cases. It's rather like a fund manager that has a portfolio, many small stocks but a couple of very large positions. The big positions drive the valuation, even as the small positions might mature and be cashed out.

From Investors Chronicle:

There is still a big question mark over the Petersen and Eton Park claims, which have a carrying value of £773m, of which a whopping £734m is made up of unrealised gains.

Now that's where we came in with the Muddy Waters report. Those claims of recognised – and thus contributing to profit – but not realised gains that were out of line with reality. That's a pretty big chunk of valuation there.

The company also tells us this:

Notably, Burford's YPF-related assets (comprising the Petersen and Eton Park claims) did not contribute to earnings in 2020, for the first time in five years.

Well, that's cool. They've not recognised any more revenue over the year from those possibly contentious amounts. But look at this the other way too. It's another 12 months further on and they've not received any money from these claims either. Meaning that their revenue recognition was a further year ahead of reality, no?

I think Burford has a near-permanent problem with those two big cases.

My view
I'm entirely willing to believe that the cases resolved and cashed in this year are now the normal run of the mill business. I do sorta expect behaviour change after a short-selling report and a stock slump after all. However, there was so much past revenue recognition – and, don't forget, profit declaration and dividend distribution – tied up in those two major cases, $700 million and change, that this is really the defining point of valuation.

If those cases do end up cashing out those amounts then the stock will move sharply upwards. If they end up paying out seriously reduced sums then equally, a significant move downwards. We've no real way of knowing which is going to happen.

That's also on the basis that the ongoing business really is looked at in the best light, that revenue recognition is conservative, that cases are being resolved and cash collected.

The investor view
I also take it that this is the general view of the market as a whole of this stock. This is also why no boost from the US quote. Sure, OK, the chastised management is running a perfectly fine business now but they've those twin albatrosses of two very large cases with possibly aggressive past revenue recognition. Until those two are resolved – either collect the revenue recognised or not – then the clouds over the valuation aren't going to lift.

Or, of course, it all takes so long, so many years as in Jarndyce v Jarndyce, that the two cases just become irrelevant to the size of the business.

I thus recommend staying out of Burford until some resolution of those two cases turns up. For I don't think the valuation is going to change much until there is a resolution there. My personal opinion, for what little that's worth, is that the resolution will be on the downside. But that's not the investment point here. Rather, however well the ongoing business is run there's not going to be significant movement until the settlement of those two. And we've no real way of knowing which way those cases will resolve. We face uncertainty, not a good thing in an investment.

[rar100] 09/3/2021 14:46

I asked for others opinions. well done, yes they are extracts, as to truth?

[irishmatt] 09/3/2021 14:28

That is just extracts from the recent trading update so yes true. What share price should be, that is your job as an investor to consider

[rar100] 09/3/2021 14:25

As I am no accountant and if the following is true could someone give an estimate of what the share price should be now. I'm sure many people that read this BB would appreciate views. (This is the latest news on Interactive Investor 17.2.21)

(Alliance News) - Burford Capital Ltd said Wednesday that 2020 was the best year in its history for portfolio performance, generating record levels of realised gain and more cash from successes than ever before.

The litigation finance firm fully reinstated its dividend in response.

Shares in Burford Capital were 0.5% higher in London on Wednesday afternoon at 705.00 pence.

"Burford ended the year with its highest-ever levels of cash liquidity, and its portfolio of ongoing matters is larger than it has ever been," the company said.

"Burford's concluded case [return on invested capital] rose to its highest year-end level in our history. New business, which suffered from the effects of the pandemic in the first half of 2020, snapped back in the second half. Notably, Burford's YPF-related assets, comprising the Petersen and Eton Park claims, did not contribute to earnings in 2020, for the first time in five years."

The claims related to Argentine government-controlled energy company YPF, which was renationalised after having conducted an initial public offering.

Burford's core legal finance business recorded realisations of USD608 million, up 72% from USD354 million in 2019, while balance sheet realisations grew 47% to USD336 million from USD228 million.

This, the company said, led to its capital provision-direct business seeing realised gains doubling to USD361 million from USD178 million, with balance sheet realised gains up 48% to USD179 million from USD121 million.

Chief Executive Christopher Bogart said: "2020 was another year of strong performance for Burford. We achieved record amounts of asset realisations from core litigation finance, which generated more realised gains and cash proceeds from case successes than ever before, driving our cumulative concluded case ROIC to an all-time year-end high of 92%.

"With cash on Burford's balance sheet of USD336 million at the end of 2020, we are in a strong position to fund the additional future growth we anticipate. We look to the remainder of 2021 with excitement."

Burford's said its group-wide total income crossed the half-billion-dollar mark in 2020 for the first time in its history, driven by significant asset realisations during the year.

"As our managed funds participated in a sizeable share of these realisations, which should generate performance fees for Burford in future years, Burford's consolidated and balance sheet-only total income was largely flat in 2020 compared to 2019. Profit after tax was down given modestly higher operating expenses and higher than normal book tax charges," Burford added.

The litigation finance company posted a USD225.5 million pretax profit for 2019, with total income of USD351.8 million.

For 2020, Burford is guiding for total income between USD345 million and USD355 million, with operating profit between USD240 million and USD250 million.

Turning to shareholder distributions, Burford noted it suspended its dividend in early 2020 due to uncertainty caused by the virus pandemic, but given the year's outcome and Burford's strong liquidity position, is proposing a full resumption of the dividend at its previous annual level of 12.5 US cents per share.

"Although Burford did not pay an interim dividend in December 2020, we will nonetheless recommend payment of the entire full year dividend of 12.5 US cents per share in June 2021," it added.

By Paul McGowan; [e-mail]

Copyright 2021 Alliance News Limited. All Rights Reserved.

[stentorian] 09/3/2021 14:04

YPF being sued in the US for environmental liabilities...

[donald pond] 09/3/2021 13:41

Nothing directly to do with BUR, but interesting nonetheless

[bogman1] 08/3/2021 18:48

Always thought Peterson wasn't priced into the share price do we have new info that it will generate a loss? I thought indications were good...

[1aconic] 08/3/2021 13:33

But only if Eton Park also fails. Some of the technical issues ARG are claiming with Petersen don't appear to apply to Eton Park. An EP win could easily offset a large portion of the write down needed should Petersen fail. Not forgetting the option that ARG could very easily agree to settle once they've delayed as long as possible. Also not forgetting the fact that the current share price isn't that far above NAV, making it easy to argue that a Petersen loss is essentially currently priced in.

[williamcooper104] 08/3/2021 13:20

Which is why they should have always proformad the Peterson adjustment out Companies are free to use non GAAP performance metrics (and usually do to take away bad stuff)

[williamcooper104] 08/3/2021 13:18

A Peterson loss would remove about a third of the book value at a stoke

[bsheep] 08/3/2021 13:01

Profit is both cash and non-cash. Any loss on Petersen will cause a huge write-down on that reporting period which will lead to a (non-cash) profit loss. Net cash effect from Petersen case will still be a gain but previous fair value gains would need to be reversed.

[pymadams] 08/3/2021 10:12

My understanding of revenue recognition is that it doesn't change the amount of profit. In the case of Petersen (approx figures) are 17m invested, 230m received in payments from third parties buying part of the case. So that is roughly 213m towards profit. However Petersen is held at 773m NAV because of changes in the status of the case. This adjustment is required by accounting standards. Burford doesn't confuse these two concepts but Tim Wirstall seems to.
If I've misunderstood this I'll be glad to be corrected.

[riverman77] 08/3/2021 09:35

His broad conclusion is that he can't invest until the uncertainty over the 2 big cases is resolved. What he's missing is the market is effectively giving zero (or even negative) value to these cases, so this is more than priced in. I view the cases as a free option with potentially massive upside. However even if you strip these out the company looks very cheap at these levels.

[dekle] 08/3/2021 09:23

I also would like to point out that they made a substantial profit without a contribution from the 2 largest cases. They say you should never fall in love with a share but I could have done that here.

[1aconic] 08/3/2021 09:00

I agree with some elements (although not how serious the consequences might be) but it's generally really superficial and contains some hideously basic errors (like Petersen having produced no cash revenue... something he even tries to continue arguing in the comments when the glaring error is pointed out to him!). He also appears to ignore entirely that the YPF cases are now relatively late stage and imply that downside risk is equally balanced with upside (i.e. assuming that possible YPF outcomes are correctly priced in) which I don't *remotely* agree with. So many other crucial aspects of the business are totally overlooked. Shame that it's a "published" article as the level of insight really is more of forum post levels...

[dekle] 08/3/2021 07:28

Can't argue with Tom Worstall's view but I'm less sceptical about the length of the time the main cases are resolved. Let's hope I'm right.

[lomax99] 08/3/2021 07:16

No, it is not IC.I believe Seekingalpha is a US based forum, where individuals can post their own views?

[jockthescot75] 08/3/2021 06:47

Is this the IC Lomax?

Thx.

[lomax99] 07/3/2021 22:22

I am not particularly bothered that he is not convinced:Https://seekingalpha.com/article/4411606-burford-capital-still-doesnt-quite-convince-me

[1aconic] 05/3/2021 14:20

Current holding in JAGX not worth a lot but here's something that popped up in the news today to provide a little break from discussions over short term price movements...
Jaguar Health, Inc. (NASDAQ:JAGX) ("Jaguar" or the "Company") today announced that the Company has entered a binding agreement of terms (the "Term Sheet") for a third non-dilutive royalty financing transaction, pursuant to which Jaguar would sell to the lender for an aggregate purchase price of $5 million (the "Royalty Purchase Price") a royalty interest in future potential crofelemer (Mytesi®) sales for the proposed COVID-related indication in long-hauler patients (as defined below), for which the Company is currently exploring the pathway of conditional marketing authorization in the European Union.

Jaguar intends to use the proceeds from the proposed transaction to support regulatory activities associated with the Company's development pipeline, including supporting the development program for crofelemer for the prophylaxis and/or symptomatic relief of inflammatory diarrhea, initially to be studied in a long-hauler COVID-19 recovery patient population (the "COVID-related indication"). This $5 million royalty financing transaction follows a $6 million royalty transaction consummated in October 2020 and a $6 million royalty transaction consummated in December 2020 with affiliates of the lender and is based on similar terms that will be outlined upon closing.

[porsche1945] 05/3/2021 01:04

hope most of you poor idiots had the sense to offload this around 7.70, i said at the time it was a miracle price and to grab it, was watching a MW interview the other day, bur the biggest fraud of a company on aim so thats saying something.