Coffee Can (or can’t as the case may be) ....
As suggested in today’s small cap report, here is a marker post for a list of subscribers’ candidate “Coffee Can” stocks to salt away out of reach for the next decade or two in the hope that they’ll blossom into 100 Baggers.
For format, I suggest a short thumbnail on the candidate suggesting how and why it meets the criteria for being a success along the lines suggested in the Mayer/Phelps’ books (sustainable high RoE/RoA, growth potential, durable moat, low-ish PE, Material founder/owner skin in the game etc.) and a punt on where the price is today and when/how it gets into the magical 100 club.
A possible font of ideas for hidden gems or maybe just a golden opportunity to spread egg all over your face. I have a candidate in mind which I’ll add in the comments once I’ve done a bit more digging ....
Gus.
Disclaimer
This is not financial advice. Our content is intended to be used and must be used for information and education purposes only. Please read our disclaimer and terms and conditions to understand our obligations.
74 comments
I'm sure I would be talking to the converted on Stocko, but if you haven't got an ISA you should because there is the extra tax free incentive that if you reinvest any dividends, it should, depending on the company help the compounding process.
That said I know 100 baggers frown on dividends being money the Company should use to reinvest in growth, rather than distribute (certainly the view that Terry Smith holds to).
Gus
A scuba diving PI is an interesting image. Can you see the Stockopedia screen ok with your goggles on?
Not really - I find it helps with my investments LOL!
What I like about the multi bagger / Coffee Can approach is that it is getting me into thinking about comparative prospects, not for the next 6 / 12 or 24 months, but instead thinking of a company’s prospects in five years time, and then five years after that. That doesn’t mean I’m going to hold something for that long, but it does mean that my analysis focuses more on market, strategy, track record, competitiveness, margins and comparative advantages (which are often intangibles as much as the product or service) over that sort of timescale.
I recently invested in Pci- Pal (LON:PCIP) which I thought I had missed the boat on. But when I looked at this with a longer term perspective, it looked a great company with very dependable and profitable growth, likely to happen for many years to come. Suddenly the words of Buffett about ignoring the price of a company when assessing it made complete sense to me as it will be likely worth a lot more in a few years. Gear4music Holdings (LON:G4M) looks a bit like that to me as well and indeed Boohoo (LON:BOO) (if it can ever regain its mojo).
I hold all.
I believe that over the pond is a better hunting ground for 100 baggers, so on that basis my selection is $PLTR (I hold).
With a market cap of over $41B many may consider $PLTR to already be too large to have a chance of managing to 100 bag, however when we consider that $msft has a market cap of just under $2T this then looks as if there is a possibility.
Palantir is a software company that helps companies manage their data, and has a growing list of customers including US Army, NHS, as well as hedge funds and banks.
Peter Thiel (one of the founders) still holds over 7%, so still has skin in the game, even though the reason for floating was to allow the founder shareholders the opportunity to sell down some of their holdings.
I believe that over the pond is a better hunting ground for 100 baggers, so on that basis my selection is $PLTR (I hold).
With a market cap of over $41B many may consider $PLTR to already be too large to have a chance of managing to 100 bag, however when we consider that $msft has a market cap of just under $2T this then looks as if there is a possibility.
Palantir is a software company that helps companies manage their data, and has a growing list of customers including US Army, NHS, as well as hedge funds and banks.
Peter Thiel (one of the founders) still holds over 7%, so still has skin in the game, even though the reason for floating was to allow the founder shareholders the opportunity to sell down some of their holdings.
Given there's no time frame for 100 bagging, I have a couple of ideas, I'm long all these;
I like Cap Xx (LON:CPX) as already mentioned below.
Bidstack (LON:BIDS) I think is a binary bet - if it can corner the market in programmatic video game ads it could explode, the TAM is absolutely huge but they've only secured a couple of mill in revenue so far. However, the company is on a massive spending spree in terms of hiring big name talent in the worlds of technology and marketing, it's either going to end in tears or beers.
Mirriad Advertising (LON:MIRI) similar to BIDS except for video instead of games. Imagine if, based on your browsing history, when you watched something on Disney+ the scene had a can of coke on the table, but your girlfriend saw the same show and it was a can of San Pellegrino or even a bottle of water. Delivering adverts into advert free subscription services is potentially a great way for the currently loss making service providers to get that missing revenue. At £150m company might already be too big to 100 bag, but there's plenty of scope for expansion and diversifying once you get big enough,
It’s often said that a good outcome from a bad process should be frowned upon. Mea culpa, in the dark recesses of my portfolio I have a few dogs that made it into the Coffee Can on the grounds that I was too ashamed to admit I bought them so I hid them under the bed. One such canine is a cr***y little micro cap oil stock that I picked up at 0.28p/share last year as a complete punt (admittedly a very bad process).
Low and behold, I had a peak under the mattress today on reports of a resource upgrade to find 88 Energy (LON:88E) is now up to 4.05/4.20p bid/offer, a 14x multiple (and a 5 bagger today on the original entry price in just one trading session). It will doubtless end in tears (it usually does), but enjoying the ride while it lasts. Usually I would have sold by now but perhaps I’ll let this one run for a while.
Gus.
Hi- sorry to reply with a different angle but can I ask you more about Samarkand as you first mentioned it here. I am interested in it but find information scarce. I have signed up to Jarvis/Share Deal in order to access Aquis. I believe they floated a few days ago. Is there anywhere with some details that you know of? Many thanks. Good also to see Burford Capital (LON:BUR) on the move.
Jules
Hi Jules.
For Samarkand (OFEX:SMK) , I suggest you start with the company website and go to the Investor section. You will find various links to useful documents. Probably best place to start would be the Offering Circular for the IPO. The deal closed on March 22nd and is now trading at a slight premium to the IPO price.
https://www.samarkand.global/i...
I did see an early draft of a research piece by VSA Capital (a bit out of date as the IPO raised £17m rather than £10m so the capital structure is a bit different) the IPO Lead Manager, as well as an Investor Presentation given by the company which were both useful. They are both behind a confidentiality agreement so I can’t post them here but if you contact the analyst at VSA, Phil Smith (psmith@vsacapital.com), you may be able to obtain a copy.
Hope this helps.
Gus.
Thanks and very helpful.
Best Jules
I've had one share which 100-bagged on me: Eurasia Mining (LON:EUA) - my lowest buy was at 0.385p, and the top was 43p (111x). Unsurprisingly a) my low buy was an average down, and b) I sold most of them on the way up. I've spotted a definite tendency for me to sell some out of relief once a share that has been for a long time sitting at a loss in my portfolio moves into a notional profit. At that point it feels like it's a time to recoup losses rather than look to the future. Hindsight is so much easier than foresight! Eurasia's stunning gains (it took less than a year) took me very much by surprise. I've no idea where that one is going but I'm on for the ride with the few I have left.
One where I had rather more confidence was Anglo Asian Mining (LON:AAZ) - my lowest buy was at 3.95p - again averaging down, and the peak so far has been 177p (44.8x). I wouldn't be at all surprised if this reaches 100-bagger status in the next few years, and I still have a decent chunk here.
If I'd just held on to all the shares I'd ever bought in those two companies I'd be (on paper) a lot richer than I am now, but I don't think that's a useful way to think about it - I think the real challenge (as ever) is working out when to sell, and how much. I'm definitely in favour of some top-slicing to lock in gains and reduce risk on the way up, but in practice I've fairly consistently over-done it on the big risers. But then I've also done it on shares which have then fallen again, and where with hindsight it's been the right thing to do. How to balance the risk of things going up against the risk of things going down? In theory, the downside is limited to 100%, whereas the upside is unlimited, so the balance is not even. How should that play out in practice?
With resource stocks the huge gains seem to come from unexpected increases in reserves, surprise deals, or decreases in risk, and are hence relatively impossible to predict. For consumer stocks though, I think a more profitable approach might be to look at the 10-baggers. I would imagine that one's chances of choosing a 100-bagger at the 10-bagger point are a lot more than 10 times higher than of choosing a 100-bagger right at its lows! At the 10-bagger point it's perhaps a matter of looking at the moving pieces, rather than blue sky ideas of possible future pieces. For example I hold both Boohoo (LON:BOO) (currently at around 14.5x lowest price) & Gear4music Holdings (LON:G4M) (~7.5x), and both of these seem to have a decent shot at growing by another order of magnitude over the next decade or so.
I just love the Blue sky idea's but to humble to think I could pick a 100 bagger.
BSV
My coffee can stock is CAP-XX.
It has a founder CEO with great persistence and with shares in CAP-XX.
It's about to make its first profit.
It designs and manufactures Supercapacitors. Supercapacitors used with batteries extend battery life.
Supercapacitors are just starting to have their uses more and more widely recognised.
It has great patents and has won a court case against Ioxus.
It is at present in a court case against Tesla Maxwell for the same patent violations as Ioxus with the same Judge.
Interesting choice with Cap Xx (LON:CPX) . I looked at it a few years ago when the board announced it was about to see a step change in performance but didn’t invest at the time. I recall Graham Neary had a look in one of his SCVR write ups and was a bit sceptical despite management’s continued optimism.
https://www.stockopedia.com/co...
One observation I’d make is that at the time of GN’s article (Oct 2017) the market cap was about the same (£45m vis today’s £42.5m) but the # shares in issue was 218m compared to today’s 457m so there’s been quite a history of dilution to pay the bills and reward the management team. Hopefully the jam is about to arrive!
Gus.
£ZYXI (Zynex) in my mind ticks the boxes for a coffee can stock. I doubt it will 100 bag from here (though perhaps from where its come from) but it has its founder as the main shareholder and is still running the show, its growing, and delivers good ROCE and ROE (all the ingredients for the coffee can!).
Its run by Thomas Sandgaard, the founder, who owns 43% of the shares. He is also the owner of Charlton Football Club.
Revenue is consistently growing and they've taken on (I think) over 100 new sales staff to continue to drives sales higher. CEO has said in a recent interview they are targeting $150m revenue in 2021, and $300m in 2022.
They sell medical devices, the main one being "Nexwave" which is a pain management device and which they consider as an alternative, and much healthier version, than opioid medication. They also have "inwave" (Delivers a nonsurgical, drug-free therapy that offers a conservative treatment to manage incontinence and is of relatively low cost to patients. ) and "neuromove" (Augment healing, as well as assist in recovery for stroke, Spinal Cord Injuries and Traumatic Brain Injury, retrains muscles, increases range of motion).
They are also ready to start selling a blood volume monitor (detects blood loss during surgery), and are in the early stages of development for a device which can detect sepsis much more quickly than is possible right now.
This is definitely not an area Id normally invest but the prospects here seem very good to me. I would say though that it is very heavily shorted and the reason for that is not obvious (the founder has said he assumes its because of the industry they are in) but could be a good thing if the reddit crowd get hold of it or the shorts start to unwind.
I hold.
Having said in today's SCVR that I was too scared to look in my Sold Stocks Spreadsheet but curiosity won out. So from 2011, when my Fixed Rate Cash Isa Bonds were maturing and the interest rate had crashed and stayed that way I've been investing in equities. During this time-span of almost ten years I've either sold or been forced to give up my holdings in 82 companies. The results found today are as follows; if sold today 35 return a gain and 17 return a loss. There were 2 mergers, 17 take-overs,11 bankruptcies and sundry consolidations and splits just to complicate matters. Of course, during this period I'd sold or added-to and sold again along the way.
Now for the Coffe-Can Crunch; there are eleven 2-baggers, one 3-bagger and then the stand-out ABDP of a 9-bagger which I had sold in 2016 for much less. Hopefully you have enjoyed this little afternoon project and found some food for thought.
Hi Silver Moon. Thanks for sharing. Not sure if you have the means readily available, but do you have any idea what the approximate value of your 2011 portfolio as constituted at that point of time would have been worth today? Your experience prompted me to do a similar exercise for my own pre/post Stocko investment selection performance.
When I first subscribed to Stocko in late 2015 I imported my then shareholdings into a portfolio template and have kept this as a static benchmark since. Of the 28 shares then held (most of my investments were in funds/ITs/OEICS and I had a relatively small number of individual share holdings), 3 have been taken over (one with a decent gain, two at substantial losses), 9 have risen in value and 16 have gone down. None have been especially successful with only Anglo American (LON:AAL) , Rio Tinto (LON:RIO) and Bellway (LON:BWY) recording gains in excess of 100% (but less than 200%) so no mega baggers there. Of the losers, Marks And Spencer (LON:MKS) , Petrofac (LON:PFC) and Rolls-royce Holdings (LON:RR.) have dropped by more than 80%. All told the portfolio marked to market value if I still held it in that 2015 form would have been down in absolute terms by about 18.5% (excluding dividends) so for me the Coffee Can approach would have been an abject failure.
Fortunately the real life portfolio has evolved quite a bit and while it still has some hair it’s now a lot more diverse (the original was mostly safe “blue chips” that proved to be anything but) and the overall performance has been significantly better - with hindsight I’m amazed how little information my original investment decisions were made on. If nothing else being able to look at what might have been makes me a bit less tetchy when I have to renew my Stocko subscription.
Gus.
Hi Gus, I would like to work on your question and will come back to you on that. 2011 is a whole year, I guess the year-end will be my point of use. In fact, it will be the October Valuation .
Silver
Hi Gus, I fully endorse your last paragraph, your experience has been the same as my own. Things have developed; 2011 comprised my share account and Isa, my spouse joining in 2013 with a share and an Isa account which I alone manage. It is Stockopedia which has been of most help in my search for the holy grail, been a member for 5 years now and still learning.
So I began with 23 stocks of which some were pre-existing Privatisations and only 8 remain. Had I kept them all, their value would have increased by 14.6%, not good but the dividends collected always help. There are 13 Gainers and 8 losers with one company being merged and another taken over. Of multi-baggers there are just two 3-baggers - Morgan Sindall (LON:MGNS) and Prudential (LON:PRU) with Gkn (LON:GKN) being a 2-bagger.
All in all, I shall carry on investing the dividends and try not to chop and change too much once I get all our shares into the Isa accounts as I feel that this is where the pot of gold lies.
Silver
Versarien ( Vrs) Might be worth considering as a high risk , possible 100 bagger. Working on innovative use of graphene. Revenue not great at the moment, and no profit.
However they do have a number of collaborations. If some of these come to fruition it could be a game changer.
The founder, Neill Ricketts, still holds a large % of shares.
Limited in ten, the number of portfolios available in Stocko, and having opened in them all I'm thinking of changing tactics. The portfolio which is named the self-explanatory 'My Slackers' may be emptied and re-named 'Coffee Pot', to hold and stress that such companies as Sdi (LON:SDI) and Judges Scientific (LON:JDG) must be held through thick and thin.
Pci-Pal an interesting one
I've got a potential candidate Tirupati Graphite (LON:TGR) which I am considering making an investment in.
It is a vertically integrated graphite miner/graphene producer recently listed in Dec2020. The graphene market is only $85m at the moment but expected to go through a metoric rise to over $1bn in the next 3 years or so.
They appear to have some competitive advantage in terms of process. See this article https://www.thisismoney.co.uk/...
Is this on anyone else's radar?
Hi kevin101. Tirupati Graphite (LON:TGR) is an interesting choice. Newly listed last December 2020 the shares have been on a tear more or less doubling in price. Have you done any particular research into the company or is it just a hunch at this stage based on the post launch price momentum and the view that it appears to be in a “hot” sector, i.e. Graphene?
I’m not that familiar with the niche they’re operating in although I recall there have been a few issues with Graphene companies in the recent past. For example, Graphene Nanochem (LON:GRPH) delisted in March 2018 after their Nomad resigned and a replacement couldn’t be found - usually a very bad sign. Likewise, I note that the auditors of Tirupati Graphite (LON:TGR) and Graphene Nanochem (LON:GRPH) were the same, PKF Littlejohn - again a bit of an amber flag I’d want to look into. Also, the company has an office in London but from the website it seems the HQ is in Mumbai. I know there have been a few issues in the past over the bona fides of stocks listed on AIM where substantially all of the activity/executive control takes place overseas, although I note in this case Tirupati Graphite (LON:TGR) have a full LSE listing.
A bit more digging required for me but seems to have promise. All said and done, it will probably hundred bag from here - so best of luck if you decide to invest.
Gus.
Probably more of a hunch at the moment, although I'm looking for moats - so the fact they are vertically integrated and ESG friendly because their process doesn't use chemicals is a draw. There are several interviews with them on youtube.
I think there's more chance of me finding a pot of gold at the end of the rainbow than knowing I picked a 100bagger before hindsight kicked in.
'Imaginary billionaires claim to pick 100baggers and how rich they would have been after hindsight. '
Still picking growth compounders is a good thing to focus on.
Good luck spotting 100baggers.
BSV
I havent read the book yet so mine might not fit the criteria, however, my submission is Quantunscape.
Although the danger is if VW sneak in and buy them up before theyve reached their full potential, VW have already taken a small bite.
Of course potential 100 baggers are of great interest to many inexperienced investors. But if you look at the probabilities then you will discover a few facts. 1) Many of them will go bust, 2) Many of them will go sideways for ever, 3) Some of them will slowly rise. 4) The very tiny percentage that might eventually be 100 baggers will take decades to get there. We should face facts. Speculating in 100 baggers is an exciting way backwards for gamblers. So place your bets and watch your hard earned money be transferred into the accounts of the stock rampers and the brokers who only want to take your commission or benefit from the bid / offer spread that you losing from.
Hi WarrantStar.
I respect your view but would suggest that even one or two experienced investors would be interested in finding a hundred bagger or two as well. In a career of careful investing based on due diligence, detailed analysis, playing safe with balanced, non speculative stocks is there no space for the occasional fling on the wild side? Over a lifetime of investing, do we remember with affection every grey, vanilla, mediocre safe play that gave us an OK return or the one or two stars that blazed to glory (even if they do eventually fizzle out)?
To use your gambling analogy, most horses on very long odds don’t win; many fall, many are never competitive, some are total no hopers hyped by owners and trainers to rig the odds. Just sometimes however one or two do beat the odds and romp home at 100–1. Is it a sensible betting strategy to bet the house on a total outsider? Probably not (although Mayer in his book does seem to advocate the best returns come from holding a small number of investment positions). Should the average PI chase every dead cert ramped on the share bulletin boards? No. But even for a seasoned investor with a portfolio made fat from backing every favourite in every race isn’t there some unique satisfaction to be had in putting some spare change into one or two shares that your own research/instinct/luck have identified and seeing them shoot the lights out?
Yeah, Warren the adult in the room, I had to thumbs you up, but reluctantly. My submission certainly fitted your description.
youve spoiled the fun with your sensible reality based post! :-(
I've just finished Mayer's book, which I found instructive, even if the title and concept has resulted in a degree of negativity here. While the '100 bagger' idea makes for a good headline, his thesis is not really about selecting a big round number and punting for that return - it is about looking at looking at the uber-compounders, which over the decades have kept on piling up the returns, and looking at what characteristics they share. He brings it back to a few key factors - skin in the game, a long runway of opportunity, good capital allocation, and then letting the twin turbos of constant growth combined with a rising p/e ratio do its work on the share price. And then you stick with it. No hopping in and out because you've spotted a new shiny bauble. Its not really that controversial, but what it does do is focus the mind on the fundamental of which shares have a better chance of delivering for you in the long term.
I'm tempted to corner off a section of my portfolio and try the 'coffee can' approach' - take a handful of candidates that best meet the criteria, leave spaces for a few more and stuff the can under the bed. If I trade out of a bigger position in any stock, the coffee can element stays put. Prise the lid off the can for a bit of a look in 5 years. I'll not be irrationally rigid; there may be reasons to say 'that has to go' - but it might teach me a degree of discipline, and I'm fairly sure that section of the portfolio won't end up doing any worse than the rest. Assuming I can spot the right candidates of course.
Hi abtan.
Thanks for the introduction to Hellofresh. I’ve not looked at the company before (only the TV ad with that really annoying small boy with appalling table manners) but you make a good case. As an aside, have you had a look at the upcoming Parsley Box ( £MEAL ) IPO that is being partially offered to retail via Primary Bid? Same sector, albeit much smaller and a different customer demographic. There’s a useful Edison research note on the site which gives a good overview of the market.
https://primarybidassets.s3.eu...
Thinking of having a nibble (no pun intended), but the issue is quite small and I would expect it to be heavily oversubscribed/scaled back.
Gus.
Hi Gus
Yes, I saw the Parsley Box IPO via Primary Bid, thank you.
I did take a quick peak, but saw zero details provided and I'm not often a fan of IPOs (although I did like the In Style (LON:ITS) IPO document I read this morning), so sadly it's not for me.
One would imagine that if Parsley Box does take off in any way, one of the big guns will replicate the service or else acquire them.
I think given the stage of the market, it's probably best to be one of the top 3 players. I guess we'll find out in 15 years...
A
I'd like to suggest Hellofresh as a potential long term winner.
As of December 31st 2020 they had:
Their LT target is:
Personally I think the 77m figure is ludicrous (the current US population is 330m, so they want c 25% of the entire population - I can't see it happening)
But I think the latter 60m figure is far too low. International markets combined are of course much larger than the US market.
They've starting to do add-ons for their orders (eg add on a chocolate bar) and I think it's only a matter of time before people start adding part of their weekly shop to the basket.
But for the sake of simplicity let's assume over the next 15 years:
The company already has lots of cash (currently €729m) and generates enough free cash (€499m in 2020) that capex commitments (€85m in 2020) should never be an issue as expansion continues.
They have also started operating various brands to accommodate differing budgets.
Note that 1 factory/distribution hub is able to produce orders for all their brands.
With all the cash they generate, they should have ample funds to make acquisitions to either help achieve the target above, or else help surpass it.
There are of course quite a few assumptions in the above, but I would hope that I'm not being unrealistic.
Of course I could be completely wrong and if the story changes drastically then I can always sell out.
Thoughts as always are welcome.
Cheers
A
I have looked at Hellofresh before but thought they were a lockdown beneficiary who might struggle once that is over.
I think their figures are wrong for the US, they will never get 25% of the population as it is too expensive for most people. The U.K. prices are around £5 for 1 course. I can’t see them covering less populated areas. Deliveries must cost quite a lot.
My European choice would be MIPS, they specialise in protective helmets for cycling, motor biking, skiing and horse riding etc, they are the world leader and have many brands. The shares are not cheap as had a good run over the last few years.
Hi Herbie
MIPS was on my watchlist last year.
I kept revisiting it, but it was always just so expensive and to be honest I didn't quite understand why a deep-pocketed competitor couldn't come in and make a better version of their helmets.
It's currently trading at x45 P/S and a x91 EV/EBITDA, so I'm not completely convinced it's in 100/50/25 bagger territory...but you never know.
----
On Hellofresh, they were clearly a lockdown beneficiary, but keep in mind that they were operating at 100% capacity quite early on, so didn't perform as well as they could have done, despite the 107% Year-on-Year growth.
It's also worth keeping in mind that different territories are going to come out of covid at different times.
So I imagine there will be a drop, but it will be staggered, and then as life returns to normal things will hopefully start picking up again. Don't forget they're only in a handful of countries, so there is plenty of room for expansion outside of their current markets.
On the issue of price, there are 4 brands that they own that come to mind:
So they do cater to all budgets...but yes, I completely agree with you, a target of 25% of the US is bonkers.
Cheers
A
Hellofresh (I hold)
For any interested in the Hellofresh story (either for the company itself, or if you're now following Parsley Box (LON:MEAL) ) there was an update this evening.
Short Version:
Q1 >100% YOY revenue growth.
Full year revenue and margin forecasts are revised upwards (although Adj. EBITDA margins look lower than 2020).
Long Version:
https://ir.hellofreshgroup.com...
Private companies are the way to go, if seeking to avoid the 'sell too soon' syndrome, because you can't generally. My biggest gainer in absolute and % terms was Want2bThere (aka LoveHolidays). 28x gain after EIS relief from 2012 investment to 2018 acquisition by Livingbridge/Gresham House. And that's CGT free due to EIS status. They never put a foot wrong in business strategy as a pioneer of the online travel market - navigated the 2016 Egyptian troubles and communicated openly with shareholders every 6 months. There was one small funding round after my investment at I recall a 3x uplift but that was all. Funny thing is, introduction came from a really spivvy source, co books and covers spring to mind. And luck plays a huge part - if the buy-out had dragged out to 2020 think how hard covid would have hit the valuation!
But that's very much the exception, confirming the <1 in 10 'blockbuster' odds. Many private companies are on a one-way path to obscurity and liquidation. Some fizzle on for years without growing revenue.
My memory fades, but I'd have thought there were several near 100-baggers at the dot com boom - I remember the days when even the BBC 8.00 am news mentioned share price hikes of Baltimore, Bookham, ARM, Autonomy etc.
Obviously the other path to bagging is to get in when a business is on the point of failure but manages to turn around, often with massive debt. I think Castlefield Tiger had a near 100-bagger on Dart/Jet2 post-GFC, but may or may not have got out before the covid crash.
Another statistic - I'm sure I heard on a podcast last year (Meb Faber or Patrick O'Shaughnessy?) that 80 % of market cap leaders eventually fall at least 50% once they're toppled and 50% fall at least 80%! Food for thought in terms of exit strategy while awaiting more 'bags'.
In terms of perceived lack of entrepreneurship this side of the pond, I think it's partly generational (old fogies like us weren't great risk takers, though the young may be) but also cultural. A graduate would leave Oxford/Cambridge with a good degree but the expectation was they would go into a safe job - law, accounting, 'management', civil service. I know a few such professionals who were on 7 figure salaries/partner drawings - how much of that was really justified, in terms of value to business and society, I often question! I thought new graduates to magic circle law firms are now close to 6 figures.
Yes you correct about some falling back, ASOS (LON:ASC) went up to 7500p but then fell down under 1100. Burford Capital (LON:BUR) also went to 2000p before falling back to 251p, Sage (LON:SGE) from 828p to 123p, it’s ok if you look at your coffee can shares when they are near a peak, but must be gutting to lose 85 bags after having 100 bags.
Even the US large caps suffer big pullbacks. Most of the US tech. shares have really taken off in the last 5-10 years, I can’t see this being sustainable and we could see another bubble bursting like the 90s.
Haven't heard Baltimore mentioned for years - I worked for them briefly and in the tech bubble day traded them (and Psion) for a few very profitable weeks...
The 100 bagger idea sounds a bit like the venture capital model - invest in 20 firms with moonshot potential, knowing only one is likely to make it, and pay for the other 19 which don't.
Keeping in mind achieving a 25% annual return compounds to a nearly 100% return after three years, which would make you quite rich if you kept going at that rate. In fact you would 100 bag your capital after about 21 years.
For example Berkshire Hathaway, a classic buy an hold investor, had a compounded annual gain from 1965-2020 of 20% versus the S&P 500 with dividends of 10.2%
These compound to overall gains for 1964-2020 of 2,810,526% for Berkshire Hathaway and 23,454% for the S&P500
Berkshire hasn't done well since 2009 which makes their earlier period look even better.
I suspect in practice most private investors own 10-20 stocks they view all have potential and likely there is a 100 bagger hidden in there, which doesn't realise its potential given our propensity to sell gains too early. Also, many of the big baggers like Apple, Microsoft had long multi-year periods of doldrums. Could we realistically hold through that? The big takeaway for me from the 100 bagger concept is let winners run, appreciate annual returns of 25% are good (ignore the moonshot noise around right now) and thus allow compounding to be the eight wonder.
i should probably read the book before commenting but think to manage the portfolio on basis of 100 bagger is not sensible and filled with Harry Hindsight (in which case why limit yourself to a mere 100x return).
Firstly I doubt many people are able to handle the psychology of holding a 100x unless it went up in a straight line and I dare say even then would be tough.
Secondly, it would be pretty poor risk management. If you opened with 1% of portfolio (assume 100x are not without risk and get a conservative allocation), then at 100x it ends up being some 50% of the portfolio assuming rest of the portfolio delivers 10% - if all this happened within the year a la Novacyte, and saw 50% of my portfolio drop by 30% plus, for me at least the mental anguish would not be worth it and I expect I would get shaken out interestingly I can probably handle a 15% drawdown on the entire portfolio a lot better (I think)
Finally, if you do have the fortune to identify a 100 bagger, presumably the investment should be added to over time/execution (unless of course 10, 20 & 50 baggers have no appeal to the investor) which by definition would reduce the bagging factor.
in the meantime, I expect Argo blockchain has delivered 100x (in remarkably short order), other stocks in the crypto space and maybe cannabis space. Sadly, I doubt I will buy any of these until they have 100 bagged for early investors again!
Good luck to those who look for/can find them and mad respect to those that can hold them all the way through.
Vivek
Hi Vivek,
I think the intention behind the coffee can approach is to avoid many of the behavioural tics you point out by simply sticking the investment in a secure dark place and forgetting about it for at least a decade (the original US hick philosophy was for it to be a legacy after you die but most of us don’t work to that timescale). Don’t look and you won’t be tempted to fiddle.
The monkey brained human tends to over trade and want to scratch the itch rather than fire and forget and for many (me for certain) Harry Hindsight suggests they would have been better off buying their best ideas after solid due diligence and in most cases just holding on. I wouldn’t do it with my entire net worth but happy to put something to one side and forget about it. Do read the book - you probably won’t agree with it but at least it’s an antidote to confirmation bias.
Gus.
"fire and forget" is a fine concept, it probably is the only way that most people would be able to hold a 100 bagger.
However I don't think it is a useful investment hypothesis for most people.
How much will you put in your coffee can? £1k so that in 5-20 years time you'll have £100k? That won't even buy you a studio flat in most of the country by them.
If you wanted, say, to buy a modest sized house over that time frame, you'd likely need to be putting in £5k to get £500k minimum.
And you'd have to be very brave and lucky/a genius to have a good chance of getting a hit from selecting a single stock.
Personally I think the odds would still be very much against you even if you picked a portfolio of 10 stocks (so that would be £50k stashed away in the coffee can and if you can afford that, you probably wouldn't be too excited about the potential £500k return, unless you were desperate for a couple more Lambos to add to your fleet.)
I don't want to derail the discussion, I think it's perfectly valid as a bit of fun, but I don't believe it makes any sense as an investment approach for most folk.
I know that Paul prompted the discussion with his mention of how much his ASOS (LON:ASC) position would be worth if he still held, but he trades through quite a lot of stocks and I suspect a portfolio of all of his sells would not generate 100x .
Personally I think I have held only three 10 baggers (one of which is down c. 90% since - not still holding, but didn't sell at the top either) over the course of my career. On the other hand I can't think that anything I have sold has even 10 bagged since being sold either.
One of my previous 10 baggers in fact has subsequently 4.5 bagged recently, but I managed to enjoy a little over 3 of those bags.
But then I probably haven't invested in anything that even had the potential to 100 bag, so I can only ever get rich slowly.
Whenever I hear these coffee can stories, I remember that only 28 of the companies that the FTSE 100 contained when it was created in 1984 still exist. Of course not all of the other 72 went bust, but quite a few did.
How the FTSE 100 has changed over 33 years - Private Investor - Schroders
Of course not all of the other 72 went bust, but quite a few did.
They didn't you know: the vast majority got taken over, usually to the shareholders' significant benefit.
British & Commonwealth and Ferranti were both brought down by dodgy US acquisitions, MFI actually went bust. GEC was crippled by stupid dotcom era purchases, the half of Tarmac that became Carillion went under and Magnet & Southern ended up with a poor management buyout.
The rest - well, the story is below. Huge amounts of value created and many of the successor companies are still listed today including Diageo (LON:DGE), Glaxosmithkline (LON:GSK), Intercontinental Hotels (LON:IHG), Associated British Foods (LON:ABF), Aviva (LON:AV.), Experian (LON:EXPN), Natwest (LON:NWG), Hsbc Holdings (LON:HSBA), Vodafone (LON:VOD), British American Tobacco (LON:BATS), Rsa Insurance (LON:RSA), Imperial Brands (LON:IMB), Carnival (LON:CCL), Entain (LON:ENT), Taylor Wimpey (LON:TW.), Rentokil Initial (LON:RTO), Britvic (LON:BVIC), Balfour Beatty (LON:BBY), Bp (LON:BP.), J Sainsbury (LON:SBRY), Genus (LON:GNS,) Elementis (LON:ELM) and Anglo American (LON:AAL).
The striking thing, however, is how many companies have passed into foreign hands.
timarr
Yes that’s what I was saying earlier successful U.K. companies often get bought out by foreign companies. I think the concept is good, it stops selling shares because short price movements, I think some people are obsessed with stop losses.
There are a I have sold out of that have 10 bagged in a short time such as $SHOP.
Boohoo (LON:BOO) also I bought at around 25p and sold for a quick profit.
But does this strategy work better than taking a fairly quick say 40-60% and moving onto other shares? Yes some go onto higher prices but often they drift back or go sideways for a while.
I have a few I’m looking to hold onto for a few years but things change, such as Burford Capital (LON:BUR).
Not looking for 100 baggers as they will be rare in the U.K. market, maybe some of the US shares around $100-$500m mcaps will make it?
I bought the book, '100 Baggers: Stocks that Return 100:1 and How to Find Them'. It was purely for entertainment purposes, confirmed before the end of Chapter One since at 76 yoa I may yet have time to finish the reading of it, but certainly not to indulge in such speculation. Good luck to the 20-year-olds who might have more focus than I did at their age.
Not really a game for me I suspect, but some things to consider.
Of those past 100 baggers mentioned above, does anyone have a view on how long it too them to 100-bag on average?
Purely guessing, but probably a long time in most cases.
If it were 20 years (which doesn't seem unfeasible to me) that would give an annualised return of "only" 26% pa.
Not bad, but not so good if you have to buy 9 dogs to find the one star (which I think would be an excellent strike rate.)
I think I'll stick to looking slightly shorter term.
Hi Gromley.
I can’t speak to the U.K. list mentioned below, but Mayer’s book lists about 350 100 baggers mostly in the US between 1962 to 2014 (his book was written in 2015) showing for each how long it took to reach the 100x mark and also the eventual multiple high water mark.
In absolute terms, Berkshire Hathaway is the star turn taking 19 years to hundred bag but maxing out at a return of 18,261x (to 2014) but there are several companies doing the 100x trick in 5 years such as Questcor Pharma, Nexstar Broadcasting and Pharmacyclics. This would require a more spectacular compound pa return of about 151%, compared to the 26% pa over 20 years. I’d be more than happy to buy and hold one of those even if I did miss the thrill of trading in and out of the stock.
Looking at the list, it would appear that the average time to hundred bag has fallen from an average of 25/30 years to more like 7 to 15 since the noughties. A few recent names to note include Qualcomm (7.3 years), Monster Beverage (9.5), Amazon (13.3), and Cisco (7.3).
My Coffee Can Candidate is Tissue Regenix (LON:TRX) going to cheat by advising to read Jacks recent SCVR from early Feb.
https://www.stockopedia.com/co...
The write up is excellent as always and the part which caught my eye was "A lot of lessons have been learnt over the past few years, so you are essentially paying a lot less for a lot more revenue, and a management team more focused on commercialising its portfolio, with a share price that has been depressed by a distressed large seller." Woodford being the distressed seller.
At less then a penny, normally wouldn't touch, mind you I did sell Ashtead (LON:AHT) at 40p (up from 8P, buying a house) and now each 1K would be worth over£300K, my daughter has a lot to answer for. Don't want another one getting away from me.
It’s an interesting exercise trying to evaluate exactly what might make a 100 bagger; quite distinct from the usual stock picking process of figuring out whether a share price might rise 30-50% in a short to medium term time frame of a few months or years. It’s not about nudging a few quick singles but instead smashing six sixes in an over to use a cricket analogy which is a very rare event.
Is the candidate a blue sky disruptor that creates and dominates a new market that didn’t previously exist (think Amazon, Facebook or Apple); a resource company that hits the mother lode with a massive oil strike or rich vein of an essential commodity or maybe just a simple mom and pop manufacturer or retailer that captures the Zeitgeist and rides the wave to mammothdom. All types feature in Mayer’s list of US companies that have pulled this off but absent perfect 50:50 hindsight it’s not obvious where the future stars come from. For me Burford Capital (LON:BUR) seems a reasonable shout but I agree it’s already quite a way into its lifespan so I agree a 100 bagger from here is very unlikely.
Although it’s not especially rational, this kind of punting mentality appeals to my predilection for a story (sucker!?) stock and serves as a foil to the boring funds and “safe” investments that populate most of my portfolio. I only read Mayer’s book a few weeks ago but it chimes with my own thinking and I have to confess to keeping a coffee can of about 10 or 12 mostly small or micro cap stocks in relatively small size that I’ve tucked away in a corner and forgotten about one of which just might be the life changing home run. One or two have already bitten the dust (e.g. the late lamented Sirius Minerals) and a couple (e.g Itm Power (LON:ITM) ) are over 40 Baggers from when first purchased but the search is always on for the next big thing (any one for Samarkand Group!!).
Great thread to start.
I think Samarkand sounds very interesting and the management team come across as very strong. I don't have much experience or know a lot about e commerce or China but the company could be in a very strong position and some type of first mover advantage. I guess always some type of political/govt risk in terms of possible shutdown/ban. There is a lot to like about in terms of numbers and ratio's but then again maybe valuation may be silly when first trading. I have seen no Primary Bid offering, so assume all institutional? Will keep a close watching brief.
I have quite a good size position in Burford Capital (LON:BUR) and very interested to see the next figures due shortly. The market is clearly uninterested in the company at present, perhaps due to more high flyers about. The shares are due for a re rating(hopefully the right way!), especially if the fund management side is growing.
Jules
Well, at least this is an antidote to the kneejerk reactions to every twisted bit of macroeconomic logic we've been seeing recently.
According to Nick Train (from 2019) In the UK the following stocks have (at one time or another) been 100 baggers:
The real estate company Daejan Holdings was another before it got taken private last year.
At the point Train did his analysis nearly 50% of the constituents of the FTSE 350 had gone up at least 10 times. The article (based on Mayer's book) is here:
https://www.lindselltrain.com/...
My observations on this are: (a) even in hindsight I don't think I could have predicted which companies would succeed and which wouldn't and (b) it doesn't matter very much if you buy decent companies at a reasonable price and hold on through the inevitable storm of macroeconomic nonsense that drives short-term behaviour.
However, to find a serious bagger you're probably best off buying during one of the market's periodic nervous breakdowns than in more stable times. I'm sure some of the stocks that were absolutely hammered last March will recover and go onto greatness.
I suspect this is the problem with looking for 100-baggers - it's not just about picking good companies, it's about getting your timing right. Novacyt Sa (LON:NCYT) was a 100 bagger at one point this last year, but who'd have predicted that two years ago? And, of course, the mantle of greatness has slipped from many of them.
Anyway, with the proviso I'm allowed to count from when I actually bought as opposed to the price now I'll plump for Purplebricks (LON:PURP) (34p) or Creightons (LON:CRL) (38p).
timarr
But £SAGE peak was March 2000 which was over 20 years ago.
I’m sure there are lots that were penny shares at one time.
I don’t think that is on, it is 100 baggers from now.
But £SAGE peak was March 2000 which was over 20 years ago.
hi herbie47
Hmm, I don't really know what the point you're trying to make? The Train analysis is retrospective (so is Mayer's, obviously), it's not saying anything about what the future will bring, it's merely pointing out that there are plenty of stocks that have multi-bagged at one time or another.
They often don't hold onto those gains - as Andy Brough notes, he sells stocks when they hit the FTSE 100 as that's "as good as it gets for most of them". As I recall he reminisced about buying Ted Baker (LON:TED) at 75p, selling at £15, watched it go to £30 and eventually reinvested at 75p last year in the re-capitalisation.
Really Mayer's book is a riff on the Texas Sharpshooter Effect. Many investing books are. If you can define your starting point - the lowest price - and your finishing point - the highest - then you can come up with quite a long list of successes and write an interesting and popular book. Investing is always easier in the rear view mirror.
In practice all this does is tell us that if you buy a good business at a low price and then sell at the peak then you'll make a lot of money. Which is true, but is really about as useful in investing advice terms as a chocolate fireguard is in the world of flame retardent safeguarding barriers.
But to the extent that the approach acts as a counterbalance to the tendency for private investors to overtrade, it has its merits.
timarr
Hi Tim,
My point was it is not very current, if you trawl back 20-30 years, yes you will no doubt find some, someone told me Marks and Spencer (LON:MKS) was a 100 bagger once. He only lists about 10 shares, that's quite a small percentage. How many 100 baggers are there in the last 10 years? Novacyt SA (LON:NCYT) is one.
I agree timing is key, Sage (LON:SGE) is quite a good example, went up quickly but then fell back quite sharply, so 100 bags could have gone down to around 16 if you did not sell at the peak and when is the peak? Many people sell out too soon, take a quick profit, get stopped out, or look too expensive or sell because momentum slows or stops or bad quarter/half year.
This strategy is american which brings me on to differences between US and UK markets, US companies tend to pay out smaller dividends or none, AMZN does not pay any, AAPL pays .7%, MSFT pays 1%, FB none. Also large US companies can still gallop, most of ours don't, although Ashtead (LON:AHT) has done well. I tend to agree about FTSE100 companies, is this because they are paying most of the profits out as dividends? Many also carry a lot of debt.
He only lists about 10 shares, that's quite a small percentage. How many 100 baggers are there in the last 10 years? Novacyt SA (LON:NCYT) is one.
If you go back to 2019 - when he did the analysis- and take only the FTSE 350 (which is fair enough, most 100 baggers would be found there) that was the grand total over all periods of time. It doesn't include AIM, so there'd be a random few more there. His main point, however, wasn't that there were so few but that nearly 50% of the FTSE 350 had multi-bagged over some period of time.
Of course, it's true that the US market is bigger and deeper and increasingly has attracted the type of stocks that are likely to grow very quickly. It's a scale thing. The US is a big enough market for a company to grow without expanding overseas, while the UK isn't. But even so, if I could have 50% of my portfolio in companies that had gone up ten times or more I'd be an insanely rich man.
And if we refocus on ten baggers I reckon we could easily come up with a decent list of likely prospects - the challenge would be to hold onto them during the inevitable volatility along the way. I managed to sell both Games Workshop (LON:GAW) and Best Of The Best (LON:BOTB) at half their current peak - which in hindsight was completely stupid. At the time it seemed sensible.
This buy and hold business is harder than it sounds.
timarr
If you had asked me 4 years ago, Burford Capital (LON:BUR) would have been my choice without any doubt but I can’t see it going up 100 times from here. I will be pleased it they do go back to £20. If they do start to take off I think they Will get taken over now they are on the US market. I’m struggling to see any 100 baggers in the U.K. Boohoo (LON:BOO) maybe but they have already gone up over 10x in the last few years.
Why is it called coffee can?
"The Coffee Can portfolio concept harkens back to the Old West, when people put their valuable possessions in a coffee can and kept it under-the mattress.
That coffee can involved no transaction costs, administrative costs, or any other costs. The success of the program depended entirely on the wisdom and foresight used to select the objects to be placed in the coffee can to begin with"
http://csinvesting.org/wp-cont...
and this...
https://www.woodlockhousefamil...
Thank you for following up on my suggestion. I too look forward to contributing.
Having put the marker post down, it’s proving surprisingly difficult to make the case for how and why any stock can possibly justify becoming a 100 bagger without sounding like a junk ramper from the very worst of the bulletin boards. Any selection is likely to be controversial and to get this kind of exponential return is unlikely to be one for widows and orphans.
With this in mind, I’m going to stick my neck out and plump for the litigation finance specialist Burford Capital (LON:BUR) as my coffee can candidate. Given it was the target of a successful bear attack by Muddy Waters in August 2019 on the premise that it’s accounts are little more than a Chimera of smoke and mirrors it seems a strange choice. If (big IF) however, we can take the figures at face value it seems to meet many of the Mayer/ Phelps criteria.
1. The potential litigation finance market is huge and to date relatively lightly serviced. Buford are global #1 by some margin yet account for a small fraction of cases that could be financed. The “runway” as Mayer describes it is long and there seems huge capacity for further growth . One issue is that they’re all ready the gorilla on the block with a market cap of £1.35 billion. Is a £135 billion litigation finance behemoth really plausible?
2. The pre-COVID business metrics were very strong and seemingly sustainable - operating margins >70%, RoE >20%, RoCE high teens etc.. Is Covid related disruption a bona fide reason for the tailing off in performance in the last year or soon just an excuse for a faulty business model? Burford had been building up a claims syndication/funds management strategy for leveraging up its expertise - get this firing properly and the earnings growth potential is exponential.
3. The business has a strong management ownership. The two original founders (in their mid 50’s) still own over 4% of the company stock each and there is a substantial level of share ownership throughout the principal fee earner layer.
4. The business seems to have a decent moat - expenses are front ended so scale, resources and market leadership give them a strong position in getting first look at the best cases and the capacity to take these on/“shock and awe” the opposition.
5. It’s relatively cheaply valued. Current PE is just over 6x - given a PEG ratio of 0.2x and the prospect of some high value/high profile settlements a relating to a mid to high teens PE is readily conceivable.
6. The potential for a home run windfall from a mega case is always, potentially, in the wings. Rather than pay this out as dividends, I could see an owner/management incentive to aggressively buy in their own stock and shrink the equity base to ramp up the residual equity share price. Cut the share count in half and you only need a 50 bagger ....
Significant growth, higher sustainable earnings, a re-rating to a higher PE and aggressive share buy backs halving the current share count coupled with the compounding effect of time. With a following wind it will be a 100 bagger well within my lifetime. Then again ......
Hi Gus
Coincidentally Burford Capital (LON:BUR) was the first name that came to my mind too when I saw this post (and yes, I hold).
When I have some time to think, I'll be sure to add anything else that might be worthy of such a list.
Cheers
A
Burford Capital (LON:BUR) - a market cap of £135bn would make it the biggest company on the FTSE by some way.
Not if Boohoo (LON:BOO) 100 bags to be worth £400Bn !
I suspect that most of the 100 baggers (from here) will be found in the less than £100m market cap bucket.
Yes I agree you have to get fairly early, Boohoo (LON:BOO) at 25p could 100 bag but from 320p it’s a lot more difficult and then does it start paying out profits as dividends which will slow its growth more.
Royal Dutch Shell (LON:RDSB) is around £125m and it’s shares have fallen back considerably, so it’s possible that will recover some more if oil prices remain at these levels or go up.
I will be surprised if Burford Capital (LON:BUR) sees 2000p for a good while but we will see the results next month.
Hi Herbie
I don't want to make this thread too much about Burford Capital (LON:BUR) (I hold), or indeed anything not do with 100 bagging in general, but on your point about their results for next month, and looking over the next year or 2, I'm actually quite pessimistic.
The last published results indicated a marked decrease in deployments = lower returns.
I guess this might be an example of those I'm willing to hold through thick and thin with an expectation, or possibly hope, that it will be significantly bigger in 10 years time.
-----
Onto your other point about making a 40-60% gain on one stock, and then moving on, well this is a strategy that I generally follow and has worked well for me over the last 4 years; I put my time-weighted CAGR >30% (waiting for Stocko to update Portfolio capabilities to confirm this.)
In fact right now I'm torn between using my limited available cash on things that I believe will be stars in the next 10 years (eg Tracsis (LON:TRCS) ) and those which I think will re-rate materially over the next year or 2 (eg Medica (LON:MGP) ).
My ordinary course of action would be to pick the latter (2 year holding period), but the former (10 year holding period) just seems simpler.
It's worth adding that with everything in an ISA/SIPP I have no concerns about CGT, which is quite a unique point not accounted for in Mayer's book, where every capital gain sale is assumed to result in a tax liability.
I honestly don't know what I will do. If my investing style isn't broke, then why fix it?
A
Wonder if abtan or anyone else has a view on today’s Burford Capital (LON:BUR) earnings report.
https://www.stockopedia.com/sh...
Haven’t had chance to go through in detail or listen to the management presentation but headline figures seem pretty good even if the market response is a bit indifferent (shares flat at London market close/up about 1.5% in NY at the moment). Managed to grow the portfolio to US$4.5 billion despite record levels of realised gains and seem to be generating a great deal of cash. Probably best to stick it back under the mattress for another year .....
Gus.
Burford Capital (LON:BUR)
Hi Gus
I've only glanced at the figures but I was unimpressed that the Burford-only Capital Provision Assets on the balance sheet has stayed constant at $1.9b.
I want this number to go up each year to signify growing cases directly on the company's books. The fact that it hasn't implies to me that higher future returns need to come from the asset management business...
However, asset management income is also relatively flat. They've been saying for a while now that this will increase materially at some point, but I'm still waiting for that day to come.
On a more positive note, I saw that there's plenty of cash on the balance sheet (more than last year), so hopefully they can get that $1.9b figure up quickly, especially with that historical 30% IRR.
I'm planning to take a closer look over the next 3 weeks, which is how long it normally takes me to go through the Burford results.
FWIW I have a feeling that I will be happy to leave it in the coffee can.
A
Burford Capital (LON:BUR)
Hi Gus
I've finally found some time to trawl through the mountain of information in the Burford Annual Report. Some observations:
It looks like it is, but a little digging has left me confused.
There were $173m of cash receipts from their indirect positions in their funds, yet only £1.915m of realised gains (i.e after costs).
So they spent $171m on cases and are now only receiving $173m back?
If correct, that doesn't seem very good, though maybe the $171m is a part of all indirect cases, not just the ones that concluded in 2020?
On a similar but more positive note, the $325m cash receipts directly on Burford's Balance Sheet appears to equate to a realized gain of $179.684m ie the initial investment was $145m and total profit made = $179.684m, a remarkable return.
b) Generating an IRR of 30% (or 24% excluding Petersen) whilst simultaneously borrowing at 6% makes complete sense.
c) Given the size of their operating expenses , the real benefit here only comes with scale.
So far I am against the use of the funds, despite the favourable profit sharing system in place, as I haven't seen any discernible benefits yet.
Fingers crossed they're just around the corner, but from the view of someone who has no real access to those funds or how they are performing, I would rather the company keeps everything on their own books where I can see true progress.
According to Burford 19% of final realized gains are made in the year before the case closes.
Even if that figure turns out to be 50% for 2020, that implies realized gains in 2021 of $256m.
For reference if the 19% holds true, then 2021 realized gains should = $674m, but honestly, that seems a little ridiculous based on the past numbers.
I'm happy to hold for now, fingers crossed we start to see some progress in the next 12 months.
Cheers
A
Hi abtan,
I'm hesitant to fire an off the cuff response to you as I know you really do your homework, but when you say :
There were $173m of cash receipts from their indirect positions in their funds, yet only £1.915m of realised gains (i.e after costs). So they spent $171m on cases and are now only receiving $173m back?
I haven't caught up with the Burford Capital (LON:BUR) results in any detail yet, but are you missing the previous fair value adjustments?Rather than £1.915m isn't the figure 1.915 + 5.482 (essentially the profits they had booked earlier but not received the cash for.
Admittedly £7.4m still seems a relatively modest return on £171m , but I can't recall if there is a also a debtor number to consider (IE where the precise amount of the legal claim has been established as due, but not yet paid).
Its a funky old business reconciling Burford's profit to cash-flow and I'm a bit rusty on the subject, so apologies if what I have just written is total nonsense!
Burford Capital (LON:BUR)
Hi Gromley
I must admit to being quite wary about commenting on Burford Capital (LON:BUR) given the mountains of data that they provide, so if I made a mistake somewhere I wouldn't be surprised.
As to your point, I think it's the other way around.
The ($5,482k) reversed out of Unrealized Gains should be offset by a +$5,482k in Realized Gains, so that the overall balance is zero.
Without this +$5,482k, there would actually have been a Realized Loss of ($3,567k).
I think that's correct, but to be honest, whichever one of us is right, it's a pretty poor result for the indirect portfolio.
Unless of course we're misunderstanding how the Indirect Portfolio works.
---
When I looked through the Annual Report about how the Funds works, there was a mention of Burford being due back costs before profits would be shared...I thought that would be on a case-by-case basis, but what if it's actually consolidating all the Fund's cases together?
Imagine this scenario:
Burford show $150m Realized Gain ($300m * 50% profit share, and all costs have already been accounted for.)
That could be right, but it doesn't really make sense to me. I would assume that Realized Gains are on a case-by-case basis, not for the entire Portfolio.
So this scenario makes more sense to me:
It cost $75m to fund these cases
So profit = $100m
I would have thought the latter scenario was correct, but it is confusing.
As I mentioned before I would rather Burford simply conducted everything directly on their balance sheet. It might not be as profitable in the long run, but at least I'll have a greater understanding of what's going on.
In the meantime, the Direct Portfolio is showing enough promise to keep me interested.
Cheers
A