Burford Capital –An Exception to the Stock Rank Rules?

Thursday, Jul 27 2017 by

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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Burford Capital Limited is a Guernsey-based finance and investment management company focused on law. The Company's businesses include litigation finance and risk management, asset recovery and a range of legal finance and advisory activities. It provides investment capital, investment management, financing and risk solutions with a focus on the legal sector. Its segments include provision of investment capital in connection with the underlying asset value of claims; investment management activities; provision of litigation insurance; and exploration of new initiatives related to application of capital to the legal sector until such time as those initiatives mature into full fledged independent segments. Its provision of litigation insurance segment reflects the United Kingdom and Channel Islands litigation insurance activities. more »

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407 Posts on this Thread show/hide all

herbie47 6th Aug 388 of 407

In reply to post #501116

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. 

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Westway001 6th Aug 389 of 407

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.

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simoan 6th Aug 390 of 407

In reply to post #501071

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

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mojomogoz 6th Aug 391 of 407

In reply to post #501156

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

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shipoffrogs 6th Aug 392 of 407

In reply to post #501186

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

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mojomogoz 6th Aug 393 of 407

In reply to post #501191

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.

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Maddox 7th Aug 394 of 407

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

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Snoo 7th Aug 395 of 407

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?

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Howard Marx 7th Aug 396 of 407

In reply to post #501156


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wilkonz 7th Aug 397 of 407

In reply to post #501226

'...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.

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Snoo 7th Aug 398 of 407

Turns out it is BUR.

Report now up on their website.

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herbie47 7th Aug 399 of 407

Price has crashed to £10.

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dmjram 7th Aug 400 of 407

In reply to post #501226

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.

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Maddox 7th Aug 401 of 407

Looks like StockRanks were correct all along - lol!

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xcity 7th Aug 402 of 407

In reply to post #501141

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.

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pka 7th Aug 403 of 407

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.

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Richard Goodwin 7th Aug 404 of 407

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.

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xcity 7th Aug 405 of 407

In reply to post #501716

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.

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shipoffrogs 7th Aug 406 of 407

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

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Gromley 7th Aug 407 of 407

In reply to post #501731

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

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

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