Burford Capital –An Exception to the Stock Rank Rules?

27th Jul '17 by iwright7

407 comments 63192 reads

I have great respect for the credibility of the Stockrank system and it is not a coincidence that >70% of my holdings have a SR>80. However, my single biggest holding Burford Capital (LON:BUR) is notably different with the lowest SR of all - Just 45. Worse it is classified as a “Momentum Trap” because of its strong M (100) and low Q (36) and V (14) scores. Yet it has been my best preforming company by a mile.

It’s not only the SR that take a cautious view of BUR because broker forecasts have repeatedly underestimated Burford Capital (LON:BUR) earning potential. Today’s H1 earnings announcement has again surprised to the upside and the house broker has upgraded its full year EPS by +74%, adding that they are unsure how to value the company.

This strengthens my view that it is important to look at a company as a whole and consider news, growth potential and its metrics. As ever please DYOR. Ian

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Rusty2

6th Aug '19

But that is only if position is over 0.5% of the shares which on Burford Capital (LON:BUR) is quite a large amount of money.

Westway001

iIs there really no rule against shorting a share, issuing malicious allegations about its finances to drive the price down and hoovering up? Seems a bit easy to me.

simoan

Surely the people selling are those that were unaware of the short until the tweet and are de-risking ?

But no-one named Burford from what I have read. IMHO share prices only move so far and so fast when "insiders" know something.

All the best, Si

mojomogoz

Accounting is basic arithmetic, high finance is rocket science by comparison. So Burford Capital (LON:BUR) have s rocket scientist in charge who can rope in some accounting grunts as needed

shipoffrogs

Yeah? - but she's married to the CEO. And the accounting requires a lot of estimates.

I’m much more worried about the married bit. Don’t need the extra dirt shovelling that she doesn’t know how to look at the books (that’s a nonsense). Experience says it’s better than most inc near all accountants.

My significant experience of US financial businesses that managing spouses is quite common. Come across it often. That doesn’t make it good but it is not the same red flag as would be in U.K.

Maddox

7th Aug '19

A very robust rebuttal and rather than the typical 'company knows of no reason for the decline in the share price' statement they believe it to be as a result of market manipulation and will look to take legal action against the shorters.

The statement also accurately articulates the Short Attack Playbook.

It won't be too difficult to identify the perpetrators, the evidence will be fresh and will be self-identifying themselves at 8am.

Perfect response - looking forward to seeing this play-out.

Regards Maddox

Snoo

No report just yet from Muddy Waters.

Maybe they got scared off? I did spend some time last night reading some of their other research and it does contain some fairly strong language..... have they been successfully sued by anyone yet?

Howard Marx

William K

'...in the share price' statement they believe it to be as a result of market manipulation and will look to take legal action against the shorters.'

Robust response certainly, but not realistic. Shorting is legal. Market manipulation is notoriously hard to prove.

Turns out it is BUR.

Report now up on their website.

Price has crashed to £10.

dmjram

Nothing Burford can do.
A report has been issued giving an opinion and they are shorting the stock, all above board.

Having a non qualified accountant with a past life as a banker/financial advisor married to the CEO in charge of the accounts in what is the complex area of long term contracts coupled with horrid cash flows seems to have come as a shock to the market!

Another nail Woodford's coffin it seems.

Looks like StockRanks were correct all along - lol!

xcity

I never considered buying their retail bonds because there was no way of gauging medium term insolvency risk.
Looking at current prices, it seems I was right.

pka

In view of the collapse in Burford's share price today after the release of the shorting report, perhaps the StockRank Rules didn't get it so wrong about Burford after all.

Richard Goodwin

Is it wishful thinking and behavioural bias? I was unimpressed by the Muddy Waters dossier. The level of Burford's costs was interesting and something I hadn't dwelt on previously but my assumption is that the response will be that they employ a lot of lawyers who typically would be senior partner level in a law firm so have to be very well paid (this is just supposition, I don't know it to be true). Most of the other allegations I thought were red herrings or easily understandable in context.

The thing that upsets me most is that if I am correct then it probably will make it more difficult for £bur to raise future capital which will have a real impact on the company. If I am not correct then of course it is exactly right that this should choke off access to capital.

The bulls and bears will decide! But so far this is proving a very expensive lesson.

It may be wishful thinking, but, if you want to check, I'd suggest going through the accounts in detail and working out what you think the shares are actually worth. Having read the dossier you should be in a good position to evaluate the figures.

btw I don't mean Stocko's version of the accounts - I mean the actual annual reports. Stocko summaries are good for comparing stocks, but the lead to an impression that all the numbers mean the same thing which isn't true at all. (for instance, even with something simple like retailing stock in one store may not mean the same as the stock figure in another; some may be full of old overvalued stock that should have been written down).

fwiw I looked in detail at Burford Capital (LON:BUR) when it was 140p. I couldn't work out how much I could trust the figures and decided not to buy. Even now that looks like an error. But if I had bought I'd have had the same problem trying to work out what price to sell at.

You couldn't make it up.

If you've lost money on Burford there's a class action being set up: https://www.rosenlegal.com/cases-register-1647.html

Gromley

Hilarious - One hopes that Rosen Legal use conservative accounting to assess the value of this (possible) case.

Burford Capital –An Exception to the Stock Rank Rules?

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Iwright7

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