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

pka 26th Jul 368 of 407

"if the recent weak price action after good results tells anything - it may be that there are a lot of people sitting on fat profits thinking of cashing a few in"

I suspect that it's mainly due to Woodford selling Burford shares to reimburse people who have withdrawn money from his Equity Income Fund, which was a big holder of Burford.

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Derrick357 27th Jul 369 of 407

I bought Burford on 5 July 2017 and sold on a SL pullback on 9 July 2019 for a 69% gain. The SR rating has made me question reinvesting but it's on my watchlist and it's certainly performed well despite the lowly rating.

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donald pond 28th Jul 370 of 407

In reply to post #497186

Perhaps the slow down in balance sheet deployments is to some extent explained by a requirement to fund the SWF vehicle?   That is already 25% committed, and I'm not sure whether any balance sheet is being committed to the Opportunities Fund, which is also being deployed quickly.

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shanklin100 29th Jul 371 of 407

In reply to post #497786

Hi Edward

Thank you for showing how the BUR SR has moved with time. I had forgotten how highly ranked it was.

On a somewhat unrelated tack, it is interesting to note that BUR interim results from last Thursday are yet to be loaded on to Stockopedia. I am aware of the Reuters excuse about smaller companies taking longer to have their results loaded than bigger ones, especially when lots of results are being reported. Whilst I view that excuse as pathetic, how much larger do Reuters want a company's market cap to be before they load its results promptly?

Waiting in hope but not expectation :-(

Best Regards, Martin

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Edward Croft 29th Jul 372 of 407

In reply to post #498201

Hi Martin - I appreciate this is an issue.  To be clear it's not that Reuters/Refinitiv don't load the data quickly... they actually auto-scan the data in via an OCR method on the same day so we do have that data availability. 

The problem is the data quality and integrity of the scanned data.  The delay is actually the length of time for the manual verification of the data to the quality standards we expect for use on the site. 

What we've found is that the announcement data tends to be incomplete, and different companies have very different data sets post announcement.  So building a good data picture of each company is very difficult and it's been impossible for us in the past. 

What I'm hoping to do is eventually start an initiative where we can make an approximate estimate of most of the company data, and publish a 'preliminary/unconfirmed' stockreport, that everyone can launch from a banner (and use for screening).  This will come with health risks... significant ones. 

I can't make any promises on when this work will take place... but we do have a new data system coming out later in the year that is designed for improved timeliness all round... so stick with us and we'll build the best solution in time. 

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shanklin100 30th Jul 373 of 407

In reply to post #498431

Hi Edward

Thank you for your reply. Its helpful to know what is going on.

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herbie47 30th Jul 374 of 407

I see Burford Capital (LON:BUR) has been updated now, SR is 20 and is style neutral.

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shanklin100 1st Aug 375 of 407

In reply to post #498431

Hi Edward

Please could you explain why the BUR results are still not on Stockopedia, what work you still have to undertake in order to load them, and when you expect this to be completed.

Prior to your post, I have repeatedly been informed by several of your staff that multi-week delays in loading the results of various companies are due to Reuters but you seem to be saying that this is an in-house problem. With larger Mkt Caps described as being given priority, this is obviously not a cause for delays with BUR.

I appreciate this its only a week since the BUR results announcement (which still seems an awfully long time), but it would be helpful if subscribers were given a complete and accurate picture of the whole results loading process being undertaken (from RNS release to results on Stockopedia) and why it frequently takes so long.

Thank you, Martin

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phoenixnight 6th Aug 376 of 407

Burford seems to be taking a bit of hammering today. The shares are currently down 13%. It seems linked to a tweet from Muddy Waters, promising to release a report tomorrow (7th) at the open into an un-named company and an 'accounting fiasco that is potentially insolvent'. From the resulting panic, investors are speculating it is Burford it would seem.

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herbie47 6th Aug 377 of 407

In reply to post #500986

They were down 20%, now about 15%.

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simoan 6th Aug 378 of 407

In reply to post #500986

From the resulting panic, investors are speculating it is Burford it would seem.

On the contrary, I suspect whoever is doing the selling knows full well it is Burford. If your going to release a shorting dossier why would you and your mates not fill your boots first?

Interesting times...

All the best, Si

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nicobos 6th Aug 379 of 407

In reply to post #500986

Burford Capital (LON:BUR) is a cash machine when existing cases pay-out and very well funded. Funding growth may be more difficult but that does not mean the business is 'insolvent'. We'll see !

Good opportunity for the 'brave' to top up I feel if you are holding long term and prepared to withstand the volatility.

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Gromley 6th Aug 380 of 407

In reply to post #501016

Indeed si and in this respect it is interesting that the upcoming "dossier" comes from Carson Block (Muddy Waters). He has previous in this respect.

Back in Feb-18 he took out a dis-closable short in IQE (LON:IQE) posted a "short dossier" and he few days later after the market had reacted the short position was closed.

As it happens he would have done better in that case to keep his short running as the IQE share price has continued to fall since, but not (as far as I recall) for ANY of the reasons he outlined in his dossier.

Interesting game this.

Edit : Meant to add that if Block has a short of dis-closable size it has not yet been reported. The only disclosed short at the moment is 0.5% from Gladstone Capital from 4th June. I don't know if there are any links between them and Block/Muddy Waters.

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harvs19 6th Aug 381 of 407

In reply to post #500991

In response to Simoan’s comment, I’d don’t get that logic. If you were going to short the stock surely you would ‘place your bets’ in the days before the tweet was released so as to get the highest possible price? Surely the people selling are those that were unaware of the short until the tweet and are de-risking ? 

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Snoo 6th Aug 382 of 407

Another way to play it would be to just get the rumour mills going, buy huge lots of Burford before the close, only for the 'dossier' to be about someone else. Burford price then jumps back to where it was. They could easily claim the mass speculation was nothing to do with them.

I can see why people might think it's Burford, but I do suspect it won't be, perhaps someone less fashionable and in a weaker position. Plus500, perhaps.

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dfhscgfsd 6th Aug 383 of 407

would shorts be showing up anywhere already if they were taken today?  Or is it only if they are disclosed?

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Gromley 6th Aug 384 of 407

In reply to post #501106

I'm not aware of any way to discover the short positions before they are notified and in fact the regulations (if adhered to) provide a near two day lag.

From The FCA requirements "You should notify us of your positions by 3.30pm on the trading day after the day the position was reached."

So for example any notifiable shorts taken out today would not need to be reported until later tomorrow afternoon and therefore might not actually be public on some of the trackers until Thursday.

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Gromley 6th Aug 385 of 407

Incidentally (and meaning to over-do the subject matter) it is entirely possible that Carston Block could have a position small enough to not be notifiable.

The only past reportable UK short that Muddy Waters has done was the IQE case I mentioned above which at 0.93% had a notional value I think of c. £7m .

Burford has a higher market cap so (based on the stocko reported market cap) a 0.49% position (NOT therefore publicly reportable) would have a notional value of c. £14m. So if a "short dossier" could move the share-price by 20% that would be nearly £3m Gross Profit.

That would not be a bad month's work.

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mojomogoz 6th Aug 386 of 407

Funding stress possible. But I very much doubt that even the most diligently bearish analyst of Burford Capital (LON:BUR) could see their way through to insolvency. That’s a big claim for this business. If BUR is the short then for me Muddy Waters really need to pull out a rabbit from their analytical hat to have credibility in my eyes. If not then they are short jumping a stock with weak shareholder base and lack of immediate visibility to make a short trade buck on a stock that can be spooked...

In that situation the share price will be down another 20% tomorrow, Muddy Waters will be out and I’ll be holding a fully made up position. If they’ve got a genuinely insightful insolvency case I will be crying over the position i have now

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shipoffrogs 6th Aug 387 of 407

Burford Capital (LON:BUR) - why did such a large company making so much profit not appoint a strong qualified accountant as its CFO?

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