Burford Capital –An Exception to the Stock Rank Rules?

27th Jul '17 by iwright7

407 comments 63194 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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letap73

23rd Aug '18

I agree a perfectly valid question - it doesn't appear to have happened on large volume either.
Interestingly, Burford's share price has roughly mirrored Plus500 over the last months. But then Plus500 has started to drop fairly sharply over the last few days on no new news - so be thankful that you are invested in Burford!

gus 1065

Now up 9% at the close. No obvious news in the sector, no results due imminently and volume only slightly above average so apart from stating the obvious “more buyers than sellers” (possibly an institution trying to top up/ open a new position) it’s a bit of a mystery. May see a material holding RNS in the next day or so. Having been in the low £10’s in early March these have just about doubled in the last 6 months.

Gus.

JohnWigg

Actually, search engines make it fairly easy to find news leaking into the public domain, though much is still hidden. Think how many individuals are privy globally to the progress of significant legal developments.

More significant for me is an article in today's FT which describes a crowdfunding approach to LitFin (though much smaller case value than Burford would touch). It then goes on to discuss the subject in general. The really worrying thing, though, is the level of ignorance shown by the FT readers who have commented. I felt compelled to add my own bit:

https://www.ft.com/content/03921f5e-a49a-11e8-926a-7342fe5e173

JohnEustace

I’ve seen speculation elsewhere that La Luna is on the move but she seems to still be moored in Dubai from what I can see.
https://www.marinetraffic.com/en/ais/details/ships/shipid:201758/mmsi:538071095/imo:1010222/vessel:LUNA

donald pond

If the Petersen case were to settle then it would need the approval of a lot of Argentinian lawyers, civil servants and politicians. While I am confident there would be no leaks from the Burford side, it would be surprising if the other side was watertight. All speculation, but I've never seen BUR move like this in the absence of results.

cidunn

Talking of search engines there is couple of nifty tricks you can do to find snippets of intel

1. A little neglected feature is with any Google search you can refine your results by recency. Just select Tools > Any time and you can select your results filtered by the Last hour, Last 24hrs, Last week, Last month etc.
2. Type into Google site:domainname.com “your_query” basically it’s a Google operator that searches the website in question for the exact query you was after (take off the quotes around the query to be more of a fuzzy search).

Eg. punch site:www.ft.com “burford” and use point 1 to help you find the most recent mention of Burford on the FT.com

Rather sadly I know ton of Google operators and ways to manipulate and interrogate Google. It actually might help the community at large if I posted a whole cheat sheet of Google Operators for purposes of finding intel on company’s and the like.

All the best,
CID

LovelyLovelyGorgeous

Post it as a separate report and it will be as welcome as cake on a wet Friday afternoon ! I would love it ......

2nd Oct '18

Burford Capital (LON:BUR) - dropped ~7% in early trading today anyone have inkling to as why?
All the best, CID

Howard Marx

$250m placing at 1850

Thanks Howard, my alerts missed that. sorry should of checked all channels before asking... thanks none the less.

William K

Can anyone explain what this new placing means anyone with Burford Capital shares? Have we all lost 7% overnight? Or have I missed something?

RadioactiveMan

Not the best person to respond as I'm a relative noob to investing but I'm a Burford holder so I'll do my best to give my take and would appreciate clarification if I'm wrong.

Yes, we have all lost 7%, whats more the increase in shares by 5% decreases the value of our existing holdings further. In the past I have had a rights issue offered to me as an existing holder of a company and I'm disappointed that the same didn't happen here. From what I can tell this placing has been designed to give institutions the chance to buy in when not enough shares are available on the market, and at a discount...

For a company of this size to do a placing would normally signal cash flow problems or bad capital management but this is a risk with insuring legal cases. Warren Buffett dislikes them as he sees them as stealing from existing holders and I am tempted to agree.

Thank you very much. That's very much my take. I agree with you and Warren Buffett - it certainly feels like robbery!.
Kind regards, William

pgs501

I am not sure I fully agree with your argument there. Yes the number of shares has increased by 5% so we own a smaller % of the company however the company is now bigger by the cash that has been injected.

I am not saying that this is the best way for Burford Capital (LON:BUR) to raise additional capital, indeed in the last 1-2 years they have raised quite a bit of additional capital through bonds which are a lot cheaper (averaging about 5% interest from memory) however maybe they were only offered higher interest rates on any future bonds due to the current level of debt and had a really good reason to want the cash now, such as a particularly good set of cases to invest in.

Given their impressive cash generation from the previous accounts I would be surprised if they were having serious cash flow problems that PI's should worry about, I see it as more likely that a good opportunity came up and they could not wait for another case to pay out, which as you say could have been a while. They were at pains to state in the previous reports that the market is huge compared to their current size.

I am also disappointed at the discount to the previous share price combined with being unable to join in myself. It could have been handled better in my view.

Pete

Albertos

If you're going to invest, especially on AIM, then placements are a fact of life tolerated by investors who allow yearly the exclusion of pre-emption rights.

In this instance, however, you can simply go into the market and buy your "rights" if you are so inclined for @ the 1850 price as I write. A lot of PI's probably did/will.

I was one of the many who gained an entry point at the last placing in March of founders shares. So not all bad.

I personally view this as positive. Burford Capital (LON:BUR) wants more capital as it has more investing opportunities than can be satisfied from its current resources, and I have no doubt that it will be supplemented by debt issuance in the near future. Given the use Burford Capital (LON:BUR) have put resources to in the last few years then I foresee continued above average growth. In this instance I concur with N+1 Singer ;-

"These incremental capital amounts, augmented by funds recycling in the business, strongly suggest to us that the opportunities being seen by Burford are significantly greater than we have been assuming."

Time will tell........

Phil

For balance, another way of looking at the Burford Capital (LON:BUR) placement is that it’s relatively small (5%), the first dilutive equity issue since 2010 and the size of the discount to the institutional buyers is quoted as being about 2.7% of the recent average share price. I don’t see it as a sign of distress to bail out the company but as a quick means of raising a decent chunk of capital to keep up the exponential growth of the business and meet the opportunities for litigation finance funding that they’re seeing. Given their rate of growth, I think it is quite sensible to increase the equity base to keep the debt:equity balance of the balance sheet reasonable. While the shares are down 7% this morning, bear in mind the issue proceeds become cash as an asset of the company until such time as they are invested in the business so there is no double hit as suggested by Radioman’s comment above. Likewise, given the relentless upward curve in the Burford Capital (LON:BUR) share price over the past few years, today’s fall may well look like little more than a minor blip in the long run.

https://www.investegate.co.uk/burford-capital--bur-/rns/issue-of-equity/201810020700116191C/

Personally, not unduly concerned about it for what is one of my largest single holdings.

Gus.

Laughton

Took the opportunity to top up this morning at 1845p - so arguably I did better than those much cleverer institutions.

Happy to have more shares in what is now a more valuable company.

Thank you very much Gus. That's reassuring. It puts everything into perspective. Burford is my largest single holding too so I'll hang on. I started buying these shares back in 2016 which means I've done alright by them to date overall. The sudden drop wiped out my latest spread bet which was a bit annoying. I'll wait until the dust settles before buying more. Thanks again, William

iwright7

One of the joint brokers is suggesting that the 2019 prospective PE is just 15.4, so still looks good value to me. Ian

Given that the shares opened at around the placing price there was opportunity for us to add if we wanted. I view it as a positive, they wouldn't be doing this without having the opportunities identified.

I think the market reaction is wrong and I'll add to my holding when I think it has bottomed out.

Burford Capital –An Exception to the Stock Rank Rules?

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Iwright7

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