Litigation Capital Manag... Share Discussion Threads

[maddox] 19/7/2023 13:34

OK last comment on this. My key point is that Litigation Finance is too complicated for most investors - perhaps not for anoraks like us - delving into the detail - actually reading an Annual Report etc. And yet; BUR's last results rns I found very challenging to interpret. The highlights all looked pretty spectacular - three digit percentage increases - loads of positives and yet it failed to impress Mr Market.

My belief, the presentation was far too complicated. Most investor don't have an hour to spare to analyse a set of results. By the way - I don't see it as an easy task - presenting a few key figures and metrics in a way that clearly reflects the performance - is difficult. You have different audiences to address for one thing.

Adopting 'fair-value' is a step in the wrong direction for LIT - more complication - no value-add.

[74tom] 19/7/2023 13:33

Maddox, all I can say is that at $19 a share your maths would have BUR trading on a price to book of 9x, excluding any further FV gains related to YPF. I can understand that opinion given their industry standing and the potential to compound the $1.5b of invested capital several times over in the next 10 years, however I can't square it with where LIT stands & your desire for them to remain on a cost accounting framework that is currently seeing them valued at 1.6x book (assuming FY23 results show equity of ~£65m).

Good to see the market is waking up to the fact that even at 2.5x book value LIT would be trading at £1.36, the margin of safety is still very substantial at current levels.

Ps. by my calculations the other UK listed legal specialist, Manolete, is trading at ~9x book value / 2.7x FV. Would they be better off using accounting?

[maddox] 19/7/2023 12:42

Now if I was into charting - I'd probably point out a highly significant cup and handle formation - with a re-test and 'moment of truth'.

[maddox] 19/7/2023 12:40

Yes, human beings seem to have a binary brain - it has to be either/or - whereas I'm polyamorous - why not have both?!? It's also clearly beneficial to compare and contrast their varying attractions, diversifies risk and aids understanding.

[someuwin] 19/7/2023 12:38

Stock is getting tight. Can get a buy quote for £5k. But not £6k

[maddox] 19/7/2023 10:36

My maths put a value on BUR as at 31 Dec 22 at c. $19 per share - excluding YPF cases. This is taking account of the BUR's internal modelling, accrued performance fees and B/S cash then deducting debt and fair-value already taken into the P/L. BUR use a probabalistic model to estimate the terminal value all their in-flight cases - this is reported separately rather than but put through the books - thankfully! But, very useful indeed to understand the hidden value - not reflected in the B/S.

We'll have to agree to disagree - but as this is LIT's thread probably annoying for others for too much in-depth discussion on BUR - happy to take the discussion over to BUR thread.

[74tom] 19/7/2023 09:42

Maddox, I strongly disagree with your view & the financial statements of BUR back up why.

On p42 of their Q1 quarterly they break down the split between deployed costs & unrealised gains, both on a consolidated basis & BUR only basis;



Total Burford Capital Limited equity / book value at 31/03/23 was $1.992b. Of this $1.395b was from unrealised gains ($959m YPF, $435m everything else). If they switched to cost accounting then Burford only equity would plunge to $597m / £461m ($556m / £430m on a consolidated basis).

So their current market cap values of £2.08b values them at ~4.5x book value. Further, the balance sheet would look incredibly fragile with $1.26b of bond related debt looming over everything else. I do not think there is a chance they would trade where they do using a cost accounting framework.

Also, the deployed cost of none YPF cases at 31/03 was $1.5b which is ~£5.30 per share, so I've no idea where you are getting $19 from. I know this is accurate because had they lost YPF then the remainder of their cases still underpinned their share price pre the March 31st verdict, which made the risk reward back then remarkably good.

Pre yesterday's update, LIT traded at 2.1x it's 31/12 shareholder equity of A$85.5m / £45m. So even if it traded on the 4.5x BUR rating which you believe is way below true value, the market cap would sit at £180m / £1.51. And that is of course ignoring the record performance in H2. By my estimates the full year results will show a growth in shareholder equity to ~A$125m / £65m, at the same 4.5x BUR ratio this would see a market cap of £292m / £2.45.

In reality I suspect LIT will re-rate to somewhere in the middle of their current lowly rating of 2.1x and the 4.5x of BUR, which would be ~£1.80.

Cost accounting may be prudent and simple on the face of it, but on it's own it over emphasises debt & under emphasises cases that have been won or are in the process of finalising the quantum of an award & which undoubtedly have a monetary value which could be realised via a third party sale if necessary.

Besides, BUR do give the best of both worlds by disclosing the deployed cost & the incremental unrealised FV gain. Should LIT do the same then not much will change from present, except that investors will be able to value them against BUR & other peers on a level playing field.

[maddox] 18/7/2023 21:20

BUR is my largest holding and I'm not being critical - their performance is excellent - and the excellence goes well beyond the YPF case. However, their share price is also way below where it should be. The YPF case's estimated worth is between $15 and $29 per share - and as at 31 Dec 2022 the other in-flight cases worth c. $19 per share. So, between £26 and £37 per share.

IMHO fair-value accounting (which isn't Mark-to-Market as these are mostly unique not traded assets - there isn't a referenceable market) is more the problem - not the solution.

We need simplicity, transparency and clarity of presentation - the complexity just means most investors put it in the too difficult bin. I think BUR should be copying LIT's existing approach rather than the other way around.

[74tom] 18/7/2023 21:10

The IDA arbitration award is not completely water tight at this point in time. See articles 50-52 of this doc;


That’s why there is no RNS. Tanzania appear cooked, but there is no way LIT can recognise the cash yet.

I agree that it makes sense to value initial investments at cost, however when you start to get involved in large international arbitration cases, completion claims & class actions then refusing to mark things up post trial milestones but pre cash receipt gets a bit silly. I.e. Burford’s carried cost for Peterson is ~$50m, however they have recognised ~$700m of FV gains. It’s an extreme example but I’m not sure how they could exclude any FV uplift and consider their accounts a fair representation of their financial position? If they had a $5b contingent liability they would 100% have to recognise a portion of it via a provision of some description.

A relevant and forthcoming example for LIT will be the completion trial against Govia Thameslink. That is provisionally scheduled to be a two stage trial; part 1 establishing whether the defendant is guilty and part 2 deciding the quantum of the award. If part 1 is won then I absolutely think it should have an impact on LIT’s P&L. Particularly as they are often reimbursed on a MOIC basis, so the exact quantum of the award isn’t critical.

Bottom line, I think you need a long track record of consistent returns & a very high success rate to qualify for FV accounting. It would make zero sense for a new entity to attempt it. Cash is of course king, nobody is arguing with that. I just don’t think it makes sense to take a black & white view on a business with LIT’s metrics.

Based on past experience here I know there is next to no chance of a consensus view amongst PI’s, it’s as marmite an issue as you can get!

[makinbuks] 18/7/2023 18:15

Doesn't look like too many buys though?? I assume red is sell

[someuwin] 18/7/2023 16:28

Excellent volume today - 2 million shares traded.

Only ever been 5 days previuosly that have been higher.

[johnwig] 18/7/2023 16:18

Well done kpo115. You were always the clever one........

[74tom] 18/7/2023 15:17

Maddox, you claim FV accounting hasn’t helped BUR, isn’t that just spurious opinion? To my knowledge they’ve never used cost accounting so what are you comparing against?

Regardless of what you think their share price should be, it’s still up 700% since 2015 & they are arguably only trading at £9 due to continuing doubts around the massive cash collection due from the Argies.

It perplexes me why so many posters on here are taking a glass half empty view. If the SEC have agreed a methodology with BUR then it’s certainly far from speculative to start using it.

Take the Indiana Resources case that people seem to be more excited about. In my view the reason we’ve not seen an RNS yet is because whilst Tanzania can’t appeal they can still apply for annulment, from my research that appears highly unlikely but remains a possibility. Then they need to pay, again that appears likely but nothing is certain.

Under the old cost accounting framework, LIT can’t recognise a penny of profit until there is clear certainty, as per their 20/12/22 RNS;

“In line with LCM's revenue recognition, the Company will only recognise revenue associated with these matters at the point in time it has more certainty on the final outcome, including following any appeal where relevant, or when there is more clarity around the recovery of funds.”

Under FV accounting they would be able to recognise a large proportion of the USD$15m+ owed to them post recovery.

Are you seriously claiming LIT shouldn’t be able to recognise a penny in such a scenario?

The same situation could well occur with the significantly larger GreenX case & is ongoing in several other cases we are aware of (Rabah, PFAS, Linchpin etc)

I think it’s a very positive development & as long as the right non GAAP KPIs and data is provided to ensure transparency, will allow the business to recognise its true value a lot sooner than using BV.

[74tom] 18/7/2023 13:51

The book is just starting to look more positive with some 25 & 50k block buys. Part of me thinks that someone wants to build a major stake here so is deliberately sitting on the sell side & accumulating any loose shares. It's certainly baffling that anyone would be a seller in these circumstances, however there are no doubt any number of ways to hold a share price back in the short term, not so much once a couple of big buyers get going.

My thoughts having distilled the RNS a bit more are that this could well driven by the board rather than Patrick, obviously we'll never know. Also difficult to be sure whether BV or FV accounting makes LIT more vulnerable to a bidder, my gut would say BV because any PE house with a decent analyst could work out a pro forma fair value and see the obvious opportunity?

Whatever, I agree with someuwin's chart hypothesis - surely we are about to leave double figures behind once and for all.

[maddox] 18/7/2023 13:41

LIT is achieving some fantastic wins - and trading at a ridiculously low valuation.

However, whilst I can appreciate the Board's positive intentions - I too doubt that adopting fair value accounting will help the share price. Based on my close following, Burford fair-value accounting clearly hasn't helped:

>> It adds huge complexity to the results by putting hypothetical figures through the P&L. Including a discount rate adds even more complexity and interest rate volatility;

>> The legal case fair valuations put into the books are only a fraction of the cases final value at settlement/judgement; and

>> Investors don't believe the figures and question what are perceived to be subjective management valuations in any case.

All fair value will do is to obscure the excellent performance that LIT is delivering. I'm please that they will be publishing two sets of accounts so that shareholders can directly compare fair value accounting with 'realised case value accounting'.

It might also be useful to complete the picture by including a memorandum statement of the anticipated terminal case values of the inflight case portfolio - so we can see what proportion is assessed as fair-value and put through the P&L.

I hope that following the next results LIT's Board will survey their stakeholders to see whether the fair value experiment has objectively achieved the desired outcome - and then make a final decision. Because, it's a hell of a lot more work and complexity if it doesn't.

[hunter154] 18/7/2023 13:24

I agree - one of my favourite companies atm.

I saw the last web presentation by CEO. They are going to launch fund 3 soon…..the balance sheet investments are now slowly crystallising which will provide continuous positive news.
Fund 1 cases are probably not far behind.

Covid really slowed them down as courts were not functioning properly but we are slowly getting back to normality.

The NAV uplift in Sept will be interesting after the accounting change ( im not a fan of this but hey-ho).

[someuwin] 18/7/2023 13:18

I think LIT is now, where BUR was at the start of 2016. Beginning a major, multi year growth phase which could see a similar 10 x multi-bag to $bn+ levels.

[hunter154] 18/7/2023 13:18

I am surprised too.
The case win (Indiana Res)should be announced in the morning so hopefully that will help USD15m take.
The market doesn’t seem to get the potential of this incredible small cap.

[jackson83] 18/7/2023 12:41

I will short 100k b4 end of play today


its game , set , match BUT LIT IS CLUELESS LOL


Opportunity to SELL

[kpo115] 18/7/2023 12:00

I am totally convinced of this share's future prospects. I shall therefore be buying 100,000 before end of play tonight!