Litigation Capital Manag... Share Discussion Threads

[williamcooper104] 21/8/2023 10:53

The UK listed market is itself like a busted closed end fund trading at a discount and self liquidating

[maddox] 21/8/2023 09:06

Thanks Boozy,

I completely agree with Paul, I sat in on Burford's court case against the LSE - it was a travesty of justice. The manipulation was obvious. On the day the Muddy waters Short Report was released the trading volume was massive on the sell-side as shorters walked the share price down. I was trying to buy - but each time the offer was cancelled and the deal not completed - then another offer would appear at a lower price.

The Aquis Stock Exchange (AQX) protects newly floated firms from predatory 'high frequency' trading - and is emerging as a strong competitor to AIM.

However, BUR is a one-off - the larger issue is that UK Financial Institutions have dramatically reduced their holdings of UK stocks from c. 30% to about 5% now. This combined with high cash redemption from funds and it's clear why the UK is so cheap relative to other markets. Nevertheless, at some point sentiment will change and funds will flow back into the market - can't predict when this will happen of course; but when it does - prices can recover very fast.

In the meantime, it's a great opportunity to buy high quality firms like LIT on a p/e of 7.

[boozey] 20/8/2023 18:11

Doing the rounds on Linked In about one of LIT's competitors:
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There is a lot of talk about the lowly valuations in the UK stock market. Burford Capital, the world leading provider of litigation finance, gives a good example of how the UK is losing business. It was, for a while, the largest company on AIM and a jewel in the crown of the City. Then, in 2019, it was the subject of a short report by Muddy Waters which saw it lose 85% of its value.
The city did little to support Burford. Indeed, after a US law expert identified patterns of trading which he identified as suspicious and showing the hallmarks of illegal market manipulation, the London Stock Exchange fought and won a legal case to prevent anonymised data being provided to Burford to allow them to investigate if this was the case. The judge in that case, found - shamefully in my opinion - that it would cause too much damage to the reputation of the LSE and the FCA if people felt that those bodies were not capable of identifying stock manipulation themselves. Since then, Muddy Waters has been the subject of a long investigation by the DOJ, which according to Google this morning is ongoing.
The actions of the LSE were not surprising. With the average holding time of a share in the UK market now under 10 seconds (yes, 10 seconds), their commercial focus is on servicing high frequency trading, and not on providing a high quality forum for companies to raise capital.
Shortly after the court case concluded (nothing to see here), Burford sought a US listing, and recently announced that after long dialogue with the SEC they have agreed an accounting approach that will no doubt become the model for this asset class. As the chart below shows, since listing in the US, the volume of shares traded has consistently increased. The red line is the moving average of trades in the US versus the UK. With a ratio now approaching 3, and rising all the time, it may be a matter of time before Burford gives up its UK listing and moves to a single US listing.
The liquidity and spread in the US markets is much better than the UK. So are the valuations applied to most companies. Another factor is institutional support: Burford was once heavily backed by UK funds, but no longer. It has been placed in the "too difficult to understand" category.
But if the UK won't take the time to understand and fairly value novel asset classes, and if it lacks the depth of capital to attract existing ones, all that will be left is a dwindling pool of undervalued, old economy companies.

[citywolf1] 17/8/2023 17:32

In terms of what's likely to be reported in Sept: there's obviously the bottom up of all the cases they have announced via RNS (which I make to be about A$60m in gross profits), but another way to look at this is top down from the cash balance they announced which was "in excess of $80m" at June 30th.

At HY the cash balance was $16.6m. We know the gross cash inflows from the announced cases is approx $81m (inc perf fees). However LIT typically uses $30m+ in a half year period (depending primarily on how much they deploy into cases - which you would expect to be rising given the growing commitments). So that suggests there could be another $15m+ of proceeds that have not been announced. There may have been some receivables paid down but the balance was not particularly abnormal. They could have drawn down the balance on the credit facility but again hard to see why they would do that given cash inflows.

[jackson83] 17/8/2023 17:08

I will add more at 70p's again


without news this with drift lol ...



panic selling


those that get bored


quick profits banked



opportunity to SELL / SHORT

AS LIT ALWAYS DROPS in the past ... lol


never say never


Mateus AKA FUNKY FINANCE rules the waves

[maddox] 17/8/2023 16:40

Yep Tom, thanks for the correction and the further additional cases. Can't see other than some big numbers being reported in these next results.

>> MTIOC - I've been investing for a good few years - and I still regularly wonder what is Mr Market seeing that I'm not? Human psychology is pack oriented - we look for the confirmation of others - so, it's difficult to invest when there is negative sentiment.

[luweiluwei] 17/8/2023 16:26

Hunter, it is.
Their due diligence process is why for me this is the most appealing litigation funder to own.

[hunter154] 17/8/2023 14:13

Hi Maddox,

The Gaap accounting requirement to restate prior year, when there is a significant change in accounting policy actually helps us. The current year EPS will be a realistic EPS on FV basis. It will highlight just how well this business is doing.
They have already said that they will compare cash and fv numbers, i believe so it should not be complicated ( says the Accountant).

On a separate note, I re-read the AIM admission doc from 2018. It just confirmed what an amazing company this is. The historic numbers outlined that they had success on 29/32 case.

It went through the methodology of how they evaluate and do their duedil.

[74tom] 17/8/2023 12:59

As to why we aren't trading higher - it's AIM in mid summer and volume is low, most prospective buyers will arrive in the weeks before results / on their publication. We should get an RNS in the next couple of weeks confirming the results date which will likely spur some taking of positions.

It is silly though as in July 2022 shares traded at 95p just days before a trading update that confirmed cases had been delayed by Covid. The market was fairly oblivious to that until it saw confirmation in black and white. Now we are just 5% higher despite what has been flagged. AIM is a funny old market that's for sure.

The attraction this time will be the huge performance improvement vs prior year figures, the return of a chunky dividend & a very bright outlook. All time highs should surely beckon as the company has never been stronger since it IPO'd on AIM in 2018...

[74tom] 17/8/2023 12:52

Hi Maddox, the Comet case concluded on 3rd April with a gross profit of A$10.4m so will be in the finals. But yes, PFAS will almost certainly be included in the FV uplift as the figure to be formally approved on 25/08 was known back in May (A$33.1m total, split between LIT and Fund 1).

The Rabah liquidation case should also be included as a judgement was reached on 2nd June & interest calculations concluded on 28th June. This case was purchased by LCM for A$10k + a 15% fee in the event of success. The gross amount payable to LIT stood at A$20.2m on 28/06 and since then a further amount has been agreed to cover LIT's costs. The upshot should be that gross profit of A$17.2m is recognised. Not a bad bit of business!

So on these two cases alone we are looking at ~A$30m+ revenue.

Then you have the Katy Perry case which was won pending appeal + Linchpin / AIG which was won & the proceeds rolled over into a second larger claim.

Clearly there are also have a significant number of arbitration cases which we know nothing about - so there could be other material uplifts in the picture. I certainly don't expect down valuations considering all historic cases have been valued at cost, in no situation would they be forecasting a case win with a return of less than what their costs are.

[mtioc] 17/8/2023 12:13

I assume there will be extensive discussion of FV methodology with the results, which should follow the principles agreed in SEC/Burford discussions.

As noted above, FV could result in some decreases of older cases, but this is likely to be very few - the loss rate is small and all are currently held at cost. Much more likely to be a material up-lift - again as per posts above.

As a new investor, I am puzzled why these have not moved more over the last few weeks. Can derive FY23 to GP level from H1+RNS announcements. Indirect costs are relatively predictable. $80m cash at year end. Funds successful. FV uplift. Unusually this is all in the public domain pre final results announcement, I wonder if I am missing a "rat". I don't think so (and insider buying suggests seems to confirm). Sometimes it takes a while for value to be recognised and LIT is quite small and complex.

Let's see in a few weeks.

[maddox] 17/8/2023 11:52

Hi Hunter,

the 18 July rns states:

'we expect to announce our audited results for FY2023 under both the existing accounting policies as well as the newly adopted Fair Value accounting.'

I presume that this would involve a re-statement of FY22 under FV - but we'll have to see. It's going to be interesting to see how well analysts, shareholders and pundits react to the change to reporting. I just hope that the excellent performance isn't lost in the complexity.

Regards Maddox

[hunter154] 17/8/2023 10:58

True.

I understand that the move to fv accounting would be to prior year’s number ( restated) so FY 23 EPS will be a true reflection of the case progressions in FY23.

[maddox] 17/8/2023 09:53

Referring back to mine and Tom's posts 1007 & 1008 - these next results are going to be stellar - taking the cash accounted basis of accounting. But we'll also have results presented on a fair value basis. These FV results will additionally pick-up un-concluded cases such as:

rns 20Dec22 - £110 million Comet Group judgement in favour of funded party, and
rns 15May23 - Settlement in Australian class action where Australia has agreed to pay the sum of AUD$132.7m.

No idea how much a fv of these and other cases will be accounted for in the P&L, but pretty substantial I'd suggest.

[makinbuks] 16/8/2023 09:54

I have him filtered and am appreciating the other thread more

[jackson83] 15/8/2023 17:32

TIMER TO SELL as all news priced in now ..


this will be sold back down / SHORTED TO 70p AGAIN lol


easy money

bet
Mateus

the funky finance dude on youtube who ran a mile and left everyone stranded a few years ago

has SOLD OUT and now SHORTING


HE WARES A WIG AND SUNGLASSES LOL ... trust is EVERYTHING LOL

[citywolf1] 15/8/2023 09:10

@74tom all correct (as we've discussed before). The simple fact is it's going to be very difficult for LIT not to produce stunning results in each of the next few years. Take this year for example, if they realised A$65m of invested cost, which would be conservative given the size and age of the portfolio, and assuming a split between direct and coinvest, they should be generating gross profit of c.$135m based on historical performance. Given size of portfolio and age of cases, both volume realised and performance could be much higher. Think about the implied PE and BV multiples on that...

[makinbuks] 15/8/2023 08:59

I particularly agree on your comparison with April 2019 and I really hope we are finally at the inflection point to rise significantly above that

[jackson83] 15/8/2023 07:26

BUY the dips AT 70p SELL THE SPIKE at 102p ... its like a pump pump .. selloff soon without new will see us back down to where we were recently



75p soon

[jackson83] 15/8/2023 06:57

BUY the dips AT 70p SELL THE SPIKE at 102p ... its like a pump pump .. selloff soon without new will see us back down to where we were recently



75p soon

[74tom] 14/8/2023 17:10

I'm not that worried about when exactly they launch Fund III, Patrick said 12-18 months as of March 2023, so second half of 2024 looks likely. Bigger picture wise I'd rather they deployed the $300m + their 25% uplift in Fund II in a diligent manner - if they do then we'll have ~ $600m of capital invested + the legacy balance sheet funds and have been making average IRR's of ~80% / MOIC's of way over 100%. With low overheads & a relatively clean balance sheet this is trading at a crazy low multiple.

It blows my mind that shares traded at 115p in April 2019 when the business was purely direct balance sheet investments. Since then they've transformed the business model via accessing over $400m of third party capital, yet the market cap is lower than 4 years ago... Risk is far lower than 4 years ago but conversely, reward is far higher.

Yes, Covid caused significant case delays, however the huge inflows over the last 6 months + rapid increase in commitments reported in the last half year report mean the business outlook has never been stronger IMO. The share price should reflect these facts and it's very positive that some momentum appears to be building. This should just be the start though, given the leverage LIT gain from the fund management arm + the material performance fees that juice up their returns.

The resumption of forecasts from Cannacord post the final results should be very interesting - I'd be surprised if the target price isn't >200p given where NAV / BV will sit at the reported 30/06/23 date + where it could grow to over the next few accounting periods as the case backlog continues to settle and further funds are deployed.

Very exciting times ahead.

[makinbuks] 14/8/2023 16:43

Yes indeed, these are critical points:
1) Lets see full disclosure on the older 100% balance sheet cases, the duration is already well over the "average"
2) How successful have they been in deploying cash from both funds I and II
3) Which leads into: when will Fund III be launched, what is the co-invest % and how will that be funded

[luweiluwei] 14/8/2023 16:04

Hoping the resolution of cases picks up pace again after the summer vacations everywhere.

There should be a lot of cases, especially direct from balance sheet, getting to their end the next year - two years.

Money that would be useful for their $500M third fund next year.