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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JohnWigg

5th Jun '18

Since I don't have access to Numis' notes, it's impossible for me to see what their rationale is. Liberum (TP 1689p) and Hardman (no TP, sponsored research) attribute no extra value to the big Argentine case (Petersen) which might be viewed as an exceptional, and is only partly recognised in the accounts. Jefferies at 1747p and Berenberg at 1690p are the others I'm aware of.

The Petersen case is, of course, potentially huge, so why does it drag on so? After all, it seems currently to be stuck in the question of whether it's to be heard in NY or BA. Given Argentina's wish to become a normal member of the world community, yet struggling under debt and inflation, I suspect negotiations are underway upon a settlement whereby the assets are transferred back rather than a financial settlement agreed ("several billions" USD). That would leave Burford with a significant holding in one of the world's biggest fracking fields!

janebolacha

19th Jun '18

Radio interview with Chris Bogart.

Gives interesting insights into the germination of the business model.

Http://theceoforumgroup.com/radio-chris-bogart-ceo-burford-capital-explains-the-breakthrough-concept-burford-created-which-turns-corporate-legal-into-a-profit-center-instead-of-a-cost-center/

Howard Adams

Hi Jane

Many thanks for the link.

Regards
Howard

JohnEustace

21st Jul '18

An interesting piece on the Akhmedov/a divorce case. The Luna, the $500m yacht at the centre of proceedings has been impounded in Dubai.
https://www.cnbc.com/2018/07/18/500-million-yacht-in-the-middle-of-russian-billionaire-divorce-battle.html

22nd Jul '18

John, it's worth looking at the advfn board for background information on latest developments in the Petersen case.
(I post there as "galatea99").

abtan

A little late to send this, but thought I would share my thoughts on the last Burford Capital (LON:BUR) update (here).

It looks as though Burford Capital (LON:BUR) has:

increased their overall stake in YPF by $66-$142m, (depending on whether the Repsol or secondary market transaction figure is used), or 13.1% to 14.6%, and
been paid $9m for the privilege to do so.

That seems like a ridiculously good deal and makes me wonder how they managed to pull it off.

Workings below for any interested.

On a similar note to my post above does anyone know whether creditors will be due any litigation proceeds from the Petersen case?

I believe Petersen was significantly debt funded and would presume creditors are no longer in the picture, but it seems an important question to ask.

I did email BUR about a week ago but received no response. They're usually quite good at responding so I've put it down to it being holiday season.

A

gregpark

hi gus

investors chronicle rate them very highly as well.

bestace

There are a few clues in the formal complaint filed with the courts (which is in the public domain) which suggest that Petersen's creditors will benefit from a favourable outcome, e.g. this:

... Petersen defaulted on its loan obligations to its creditors, which foreclosed on Petersen’s YPF shares. Petersen subsequently entered into insolvency proceedings in Spain and is undergoing liquidation in an effort to satisfy its outstanding creditor claims. This action is brought by Petersen’s receiver pursuant to the liquidation plans approved by the Spanish bankruptcy court.

and this:

In July 2012, as a direct and proximate cause of Argentina’s and YPF’s breaches, Petersen filed for bankruptcy protection in Spain. Three months later, a Spanish bankruptcy court declared the Petersen entities insolvent. In December 2012, Repsol and several financial entities requested that the court-appointed Spanish bankruptcy administrator include their outstanding credits against Petersen in the bankruptcy proceedings. In November 2014, the bankruptcy court approved a plan to liquidate Petersen.

I would imagine any creditor claims are already taken into account when Burford are making comments like this (from the RNS issued on 3/1/17):

It is a matter of public record that Burford is entitled to 70% of the recovery in the Petersen matter (from which Burford will need to pay meaningful expenses which would be expected to reduce Burford's recovery to something below 60%).

I posted some comments over at the other place why I don't think it is sensible to directly read across from the $5bn Repsol figure to infer what the Petersen and Eton Park claims might amount to.

Finally just to note that Burford's interest in the Eton Park claim is greater than 70%. From the 11th July RNS (my bold):

Burford... made a $21 million advance payment to Eton Park in exchange for the right to receive a further 70% of Eton Park's proceeds from the YPF litigation less various fees and expenses.

I don't think they have ever disclosed what their original interest was in the Eton Park claim. The original complaint filed with the court in 2016 only has this to say about Burford:

The Petersen lawsuit was filed by the Petersen entities’ court-appointed receiver with financing provided by a wholly-owned subsidiary of Burford Capital LLC (“Burford”). Plaintiffs here [i.e. Eton Park] have likewise sought financing from Burford to help defray the significant costs and expenses associated with this litigation. However, Plaintiffs have not assigned their claims to Burford or any other third party and maintain complete control over the prosecution and settlement of their claims.

abtan,
The Petersen case is being brought by the receiver, so it will be for them to distribute their share of any eventual receipts. That won't affect the Burford entitlement.

23rd Jul '18

Brilliant response, thank you.

- I did see your post "in the other place" - my calcs were simply to come up with a range of possibilities. Understood regarding this being a potentially futile exercise.
- Noted on Eton Park %

Cheers!

Thank you

25th Jul '18

Half-year results out this morning. Close to consensus profit and eps for full year!

And this is the slower half, supposedly!

http://www.burfordcapital.com/wp-content/uploads/2018/07/BUR-30307-Interim-Report-2018-web.pdf

Edit: Liberum:

"Burford has reported another impressive performance in the H1/18 period. Adjusted profit before tax of $163.8m represents 72% of our current full year forecast, significantly de-risking our FY forecast. "

I did smile at the Liberum comment.
“significantly de-risking our FY forecast” = leaving our forecasts looking silly again

John,

And their forecast was about 20% above analyst consensus!
They were one of the better ones - and still missed by a mile.

donald pond

what an extraordinary business it is. Last year a commentator in Money Observer picked it as his "buy and hold forever" stock. The biggest problem with BUR is that it brings into sharp focus the conflict between running your winners and not overconcentrating your portfolio!

donald.
My approach to that is to tell the rest of my portfolio to buck up its' ideas. I'm letting my Burford Capital (LON:BUR) run and working on the rest.

iwright7

I see N+1 have upped their growth estimate for the next 3 years from 10%/annum to 25%, 15% and 15% respectively and upped their target price by +15% to 1931p. Still looks conservative to me. Ian

QinetiQ70

Dear Jane, how nice to see a post from you again - I used to read your posts on Int. Inv. (before they wrecked the site) My handle then was MissMolly...Burford is still my best stock and IQE is still an enigma, have got burned a bit on Frontier Developments (Jurassic Park game) but think it will be ok next year. I wonder if you post elsewhere, I do miss II's BB's and hate 'threads'. I will look at this site more now to see your posts!

Hi, Molly, nice to hear from you again.

I sold out of IQE several months ago.

My top two holdings now are Burford and GAN.

I also post on advfn as "galatea99".

Best wishes,
Jane.

Burford Capital –An Exception to the Stock Rank Rules?

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Iwright7

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