Burford Capital –An Exception to the Stock Rank Rules?

Thursday, Jul 27 2017 by
54

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 »

LSE Price
832.5p
Change
-2.8%
Mkt Cap (£m)
1,872
P/E (fwd)
5.9
Yield (fwd)
1.5



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407 Posts on this Thread show/hide all

Howard Adams 17th Jan 248 of 407
2

Hi

An Investor Chronicle write up of Burford Capital (LON:BUR) with mentions to Litigation Capital Management (LON:LIT) and Manolete Partners (LON:MANO) (I hold all three Burford Capital (LON:BUR) largest others very small entry positions).

https://www.investorschronicle.co.uk/shares/2019/01/17/litigation-finance-can-growth-continue/

Regards
Howard

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janebolacha 17th Jan 249 of 407
5

Interesting and well researched pitch on Burford at the recent MOI Global Best Ideas Conference, posted on ADVFN by "houseofpain1":

https://moiglobal.com/artem-fokin-201901/

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Howard Adams 17th Jan 250 of 407
2

In reply to post #437598

Hi Jane

Thanks for the useful link.

Regards
Howard

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JohnEustace 18th Jan 251 of 407
8

In reply to post #437598

That's a very thorough presentation indeed. I'll be looking out for any more ideas from Mr. Fokin.
Most of the Burford story will be familiar to holders here but one point made in the presentation hadn't occurred to me.

It concerns the European Waterfall structure of the the Burford managed funds. Normally when Chris Bogart talks about this my brain switches off, but I now realise it's an important point that I just wasn't taking in properly.

The structure means that Burford don't earn any incentive fees from a managed fund until after the outside investors have been paid back all of their original investment.

Therefore Burford's fees are negligible early in the fund's life, but then there is a tipping point when the external investors have been paid back their original capital at which point Burford's fees start to kick in non-linearly.

Mr. Sokin believes that process will start to be seen in the H2 2018 results and continue in to 2019 , acting as a possible catalyst for a further positive move in the Burford valuation.

Slides 154 and 188 in the presentation.

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Howard Adams 18th Jan 252 of 407
2

In reply to post #437948

Hi John

Thanks for your insight.

I read the slides and thought there is something important here with regard to the managed funds portion of Burford Capital (LON:BUR) activities, but could not quite capture the essence of it.

Your explanation has turned the light bulb on.

Many Thanks.

Regards
Howard

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Luthrin 1st Feb 253 of 407
6

During November's Capital Markets Day presentation, Burford's CEO Christopher Bogart discussed perceived threats to the company's business model from increased regulation of litigation finance, giving several reasons why he felt such concerns were overstated.

In a later presentation, Managing Director David Perla described how Burford was "winning hearts and minds in government and business", with the company taking a proactive stance to maintain the present regulatory momentum. If I recall correctly, he then mentioned that he hoped to announce a new hire from the US Department of Justice later in the month, but there has been no sign of any news update from Burford since.

Today, however, I notice from browsing Burford's Team page that a new staff position has recently been created by Burford: Director, Global Public Policy, with Danielle Cutrona taking the role. Ms. Cutrona's linked bio page states as follows:

"Danielle Cutrona is Director, Global Public Policy, leading Burford’s policy and lobbying efforts at the global and US federal and state levels.

"Ms. Cutrona joins Burford from the US Department of Justice, where she was the Senior Counselor to the US Attorney General, advising on all aspects of the Department’s civil, criminal, and national security policy development, interbranch and interagency coordination, and public and external affairs. This followed nearly a decade of service on the US Senate Committee on the Judiciary, including as Chief Counsel. Previously, she served as a Deputy Counsel to the New Jersey State Legislature and an associate at Skadden, Arps, Slate, Meagher and Flom LLP and Edwards Angell Palmer & Dodge LLP.

"Ms. Cutrona is a graduate of Georgetown University with a degree in Government and Seton Hall University School of Law. She was a law clerk to the Honorable James R. Zazzali on the New Jersey Supreme Court."

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shipoffrogs 1st Feb 254 of 407

In reply to post #442928

Luthrin, if Bogart thought the regulatory threat was over-stated he seems sufficiently concerned to make this appointment.
I've long thought regulation was Burford's key risk.

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Luthrin 1st Feb 255 of 407

In reply to post #442933

"I've long thought regulation was Burford's key risk."

Same here.

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mmarkkj777 1st Feb 256 of 407

Interesting debate,

I have recently bought Burford, just based on the price performance this last month (Jan).

I'm thinking of adding, but have not considered the risk of further regulation in their operations.

I wonder how big a risk it is on a scale of 1 to 10 (1 being understated and 10 being overstated).

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abtan 2nd Feb 257 of 407
1

In reply to post #443123

I haven't really considered regulatory risk for Burford Capital (LON:BUR)
Is there anything in particular people are concerned about?

I recall that Peter Thiel funded Hulk Hogan's litigation costs against Gawker and its editor (forget his name).

As confused as I was by this (why does Hogan need someone to pay his legal bills?) I couldn't see any reason why there would be a conflict of interest for funder, or why regulation might be required for an individual or corporation who wanted to fund a litigation case.

Any insight would be appreciated.

A

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Luthrin 2nd Feb 258 of 407
11

In reply to post #443133

"I haven't really considered regulatory risk for Burford Capital (LON:BUR)
Is there anything in particular people are concerned about?"

I see it as a matter of logic.

In order to rebuff any accusations that litigation finance is predatory and socially undesirable (in essence a form of corporate ambulance chasing), Burford has been at pains to stress how its business model can be used for social good, levelling the playing field between mega corporations with deep pockets and smaller commercial entities that cannot take the risk of funding protracted litigation, no matter how valid their case may be. They like to cite the so-called 'razor wars' dispute between Gillette and ShaveLogic (example), painting it as a David vs Goliath struggle in which the provision of litigation finance by Burford levelled the playing field for the little guy.

I'm sure there's a great deal of merit to Burford's argument, but no matter how well-capitalised they may be, if they start to persistently tread on the toes of major US corporations then there's a danger that they will be regarded by such entities as a threat that needs to be neutralised - and in the US this is traditionally achieved through the political lobby system. You only need to look at Disney's persistent lobbying for copyright extension for example to see how effective this can be, and this is despite Disney drawing upon public domain works for some of its greatest hits.

It therefore makes sense for Burford to take steps to pre-empt such a threat by hiring individuals who will be able to counter such lobbying, although in the end I suspect it's those with the biggest lobbying war chest who would win the day. It would be somewhat ironic if several years from now Burford finds itself taking the role of David against the collective multi-billion Goliaths of corporate America.

For clarity though, and in case anyone thinks I'm trying to dampen the prospects for the company, I think Burford is one of the most compelling investment cases I have come across in twenty-five years of involvement in equity markets, and I still can't quite understand why it's not receiving a higher valuation. Back in September I never thought I would get the chance to add to my already substantial holding at less than £15 per share, let alone the £13 level hit in December, but I proverbially backed up the truck at those prices and I don't intend to sell any shares unless I see dark clouds on the horizon from the sort of lobbying mentioned above. I also get the impression from postings on Stockopedia that many experienced private investors feel much the same about the company.

Stockopedia is an invaluable resource, but it can only judge a company on the data provided by its supplier (Thomson Reuters I believe), and in turn the data supplier can only process the information as presented in the statutory accounts. Free cash flow generation is critical to Stocko's ranking algorithms, both with the Value and Quality ranks, but unfortunately Burford's statutory cash flow statement (one of the most complex you're ever likely to find in a set of accounts) doesn't distinguish cash which is reinvested in the company by necessity against cash reinvested by choice. However, it's getting late and this is a subject that deserves closer scrutiny at another time.

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JohnEustace 2nd Feb 259 of 407
2

In reply to post #443143

I agree with Luthrin above that Burford are liable to tread on some powerful toes and need to be prepared to defend themselves. 
On a more positive note remember that Burford owe their business model to changes in regulations and they continue to benefit from further changes, their expansion into Singapore and Hong Kong being recent examples.
So this hiring need not be seen as purely defensive - there is scope to lobby for changes that open up further opportunities as well.

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iwright7 3rd Feb 260 of 407

Libertum have produced a research note this week suggesting that although Burford Capital (LON:BUR) don't give earnings forecasts, Libertum estimate a 29% upside, based on Burford's historic and in the future reducing ROIC%. Ian

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ls2g08 19th Feb 261 of 407
2

VW seems to have won an appeal over the diesel emissions scandal against German consumers backed by Burford through the company MyRight. It seems though there is the ability to appeal this appeal and the share price hasn't reacted much to this news.

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JohnEustace 19th Feb 262 of 407
1

In reply to post #449743

Do you have a link to that news ls2g08? Google isn't finding it for me.
My best guess is that it's the test case where the driver hadn't bought the car directly from VW where the judge already indicated she would rule against the plaintiff, but said she knew they would not be the last court to look at the case.
If so, it's one among several different cases.

https://www.bloomberg.com/news/articles/2018-12-18/vw-seen-scoring-new-victory-in-german-test-case-by-diesel-owner

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ls2g08 19th Feb 263 of 407
2

In reply to post #449783

Hi John I believe this is news (Reuters link below).

https://uk.reuters.com/article/volkswagen-emissions-court/volkswagen-wins-appeal-against-diesel-car-owner-german-court-idUKL5N20E1WG

It does appear to be the same case you have mentioned. If so seems a slight overreaction

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JohnEustace 19th Feb 264 of 407
2

It does look like all those German VW cases will go all the way to the Federal Court. There’s no previous history of class actions in Germany and the cases have had to be constructed in innovative ways in order to bring them at all, so they will require precedents to be established at the highest level.

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crystal tipps 12th Mar 265 of 407
1

It’s that time again....

Anyone have an opinion on what tomorrow’s full year 2018 results will bring?

Or depending when you read this, your opinion of the full year results?

CT

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Edward John Canham 12th Mar 266 of 407
1

In reply to post #457108

Enough profits to make the SP go North I hope!

Can't see how you can predict their profits - analysts seem to have given up.

Phil

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JohnEustace 12th Mar 267 of 407
1

I think that’s a known unknown until 07.00 when I will be pressing refresh impatiently awaiting the release!

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