Small Cap Value Report (Mon 12 August 2019) - BUR, TCG, ANG, GOAL, STAF

12th Aug '19 by Graham Neary

71 comments 10475 reads

Morning folks,

Burford news keeps rumbling on.

At the same time, there are a lot of interesting macro stories at present. And there's also some small-cap news to look at (which is supposed to be my topic, after all!).

Stories covered today:

Burford Capital (LON:BUR)
Thomas Cook (LON:TCG)
Angling Direct (LON:ANG)
Goals Soccer Centres (LON:GOAL)
Staffline (LON:STAF)

Burford Capital (LON:BUR)

Share price: 748.5p (-12%)
No. of shares: 219 million
Market cap: £1,635 million

Evidence of market manipulation in Burford shares

There are softer stock market targets than a group of litigators, but that is exactly who Muddy Waters decided to pick a fight with. So far, Muddy Waters is winning.

In today's RNS, Burford claims that there is evidence of illegal market manipulation of its stock.

I don't know if that is true or not, but I do know a little bit about market mechanics. Burford explains to us today what "spoofing" and "layering" are, and says:

Spoofing and layering are both illegal and have resulted in criminal convictions in the past. As an example, layering led to the 2010 "flash crash" when the Dow Jones Industrial Average fell 600 points in five minutes; the perpetrator was found guilty of fraud.

There are a few things I might say about that.

Firstly, the "Flash Crash" was indeed a disorderly event but I can't agree that it was all bad: it was a terrific buying opportunity for fundamental investors, for example. I remember reading about a fund manager who literally sprinted across his building to place his buy orders in the market as quickly as possible. For every seller, there was a buyer. Those who were focused on value did very well out of it, as they should!

Therefore, at the risk of repeating what I have already said about the short attack at Burford, let me highlight that Muddy Waters did not force anybody to sell their Burford shares.

Indeed, those who believe that Burford shares are worth £20 should be pleased that MW has created an opportunity to buy them for £7.50.

But lots of people don't think this way: they…

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dscollard

12th Aug '19

Tim your unequivocable quip made me genuinely laugh out loud. Pithy!

In the spirit of Sun Tzu: know thine enemy

bestace

Given that Burford didn't directly accuse Muddy Waters in this morning's RNS of engaging in the market manipulation, that tweet from MW looks to me like a 'non-denial' denial of the sort more commonly favoured by politicians.

spantic

Regarding the thumbs down I have to agree with Paul it is unjustified ! Would it not be more respectful to make your views on any report here in type with a balanced argument ?
As for Burford well this has turned out to be a right old bun fight ! The MW report did have some valid points for sure, but to use terms like " Arguably Insolvent" could be regarded as a bit unjustified and would give grave cause for concern to Burford share holders.
The fact that Burford's share price started to collapse the day before Muddy released it's report is in my opinion cause for concern, after all MW are not any holy crusade to to cleanup bad companies, they are in it to make money from shorting. So I believe that they to should be scrutinized as well as Burford.
I wonder if the FCA will get involved in this one - time will tell. But one thing is for sure shorters can be damaging to your wealth .

shanklin100

Re Burford Capital (LON:BUR) and those attributing today's share price falls to this morning's RNS, it seems at least equally likely to me that the SP drop was caused by the Argentine election result as per:

https://www.reuters.com/article/us-argentina-election/argentina-opposition-on-way-to-defeating-macri-in-primary-after-major-upset-idUSKCN1V209J

This may well impact the situation re the Petersen case, in which BUR sold 10% of its interest for $100m a few weeks ago, and retains a 61.25% interest.

In the short-term, I don't see how it affects the court process, ongoing in the US, as Argentina is seemingly already prevaricating to the maximum extend possible, but it may reduce Argentina's inclination to pay the amounts that will probably be awarded against them. I presume Argentina will find it impossible to raise finance internationally if it doesn't meet its future obligations both in this case and on its bonds. To what degree BUR would gain in the long terms from punitive terms on non-or-delayed payment versus the possible time delay, I have no idea.

Comments welcome as I am certainly no expert on the above.

timarr

I wonder if the FCA will get involved in this one - time will tell.

Fear not, the FCA is on the case:

The FCA has been aware of these matters since the first tweet and price movements on Tuesday of last week and at that point we began undertaking wide-ranging enquiries. We will continue to make enquiries using the wide range of data and resources at our disposal.

Thank heavens for that, we can all rest easy.

xcity

I agree that it is a mistake for Burford Capital (LON:BUR) to be concentrating on market manipulation rather than the substantive issues, especially since the current price is so far below the allegedly manipulated price. I also fail to see what benefit MW would have gained from the alleged manipulation - their big hit was to come from their short report out the next day.

I agree with Graham that, on the basis of the info so far, the previous high price was probably unjustified. And still no idea how to value it. Will be an interesting one to revisit in 5 years or so. At least the outcomes should be visible by then.

Mark Carter

Kudos to PWC for drawing a line in the sand on Staffline (LON:STAF). I don't know what PWC has said, but I take this as a colossal red flag that Staffline (LON:STAF) and its auditors couldn't reach agreement on accounting treatment.

Momentum score of 7. Yikes. The whole thing seems untouchable to me.

Lincoln Green Imp

I am a new member this year and so far have found Paul & Graham's articles, excellent. Wishing I had joined Stockopedia earlier at the moment.

In the short-term, I don't see how it affects the court process, ongoing in the US

The latest from the Petersen case in New York is that Argentina are in the process of submitting a forum non conveniens motion which, if successful would see the US judge decline to hear the case on the grounds that the Argentine courts are a more appropriate forum for it to be heard.

So I think the latest political developments in Argentina are actually quite helpful to Burford Capital (LON:BUR) in the short term.

herbie47

It does not work on the new system but does on the old one Burford Capital (LON:BUR), it has been reported and is in the pipeline to fix.

duplicate post, deleted.

Now I'm getting duplicate posts.

rwedgbury

Burford Capital. I wonder what would have happened had Muddy Waters been British and Burford American. The class actions would have claimed millions. Why can't Burford start a class action?

-1

FREng

There was a mid afternoon profit warning from Cenkos ( £CNKS if that works again yet)

JohnEustace

The judge also told both parties to make genuine efforts to negotiate a settlement before the hearing starts. The chances of that happening are reduced by the Argentinian election results. Macri might conceivably have settled, but given the expropriation happened under a Kirchner government the chances of another government with her in it settling must be more remote.

Personally I don't think there is any chance of the forum non conveniens motion succeeding. It's largely a matter for the plaintiff to decide where to sue and the previous intimidatory behaviour of the Argentines during proceedings in Buenos Aires makes it obvious that justice would not be served by hearing the case there. It's just another kick of the can down the road, and won't be the last.

Personally I don't think there is any chance of the forum non conveniens motion succeeding.

I would agree it's unlikely to succeed, but if it was such a long shot the judge could have declined to even hear the motion, particularly since the same judge opined previously on YPF's FNC motion in 2016, rejecting it mostly on the basis of the intimidatory behaviour you mention.

However that behaviour was by the previous Kirchner regime. if Macri looked like he was going to win the forthcoming election then that 'intimidatory behaviour' argument falls away somewhat, hence why I think the latest political developments in Argentina are helpful to Petersen in defending the FNC motion.

Luthrin

As I understand it, Argentina has until 30 Aug to give support to the forum non conveniens motion, Petersen will have until 30 Oct to present arguments, and Argentina then has until 29 Nov to counter argue.

Is it possible that Judge Preska has allowed Argentina some leeway so that her decision would be given after the October election had been decided? Politically it might have been very difficult for the Macri government to agree to a multi-billion-dollar settlement with a foreign 'vulture fund' prior to the polls, so a timetable is provided that delays any public commitment.

Argentina's Attorney General was present at the hearing that day.

Julianh

My thoughts too. A populist government in Argentina might be very willing to thumb their noses at any American court asking them to pay such a huge sum of money

Paul Scott

13th Aug '19

Hi Lincoln Green Imp,

How marvellous! We try our best, even if it's sometimes under-appreciated by between 1 and 7 curmudgeons per day!

Welcome to our happy throng :-)

Best wishes, Paul.

donald pond

Whether it was a mistake of £BUR to issue the RNS or not, there was clear evidence of spoofing and layering. We don't know who by, yet. But when I worked in financial services the FCA insisted, at great cost, that everyone in my part of the organisation be taught to recognise and report blatant market manipulation, of which spoofing and layering were the 2 standard examples. So my point is, if businesses are required to spend millions on training people to recognise these, then presumably the FCA now has to investigate both whether they happened in this case and, perhaps more importantly, whether those companies that were party to the manipulation and/or should have recognised it did so. Whatever else, this could be a unique opportunity to clean up the markets. We live in a culture where successive governments and regulators have been keen on passing laws and on imposing costs, but have shied away from enforcing them, so the law abiding suffer the costs and the criminals act with impunity. Now is a chance for them to enforce the rules they have made: and if they don't, we may as well shut down the FCA.

Small Cap Value Report (Mon 12 August 2019) - BUR, TCG, ANG, GOAL, STAF

Burford Capital (LON:BUR)

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Graham Neary

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