BUR.L - Burford Capital

[cameronfen]

Burford's cash generation cannot be estimated reliably by any means; how do you justify whether the forward IRR will be 10%, 20% etc? 

 

Again my question, as you stated the accounting has changed over time and this seems to be they key argument of bears: how has it changed and what do the changes imply? Have you noticed the revenue recognition has changed? Why is that?

 

Can you explain what you mean by accounting changes?  How has revenue recognition changed?  I couldn't find that up thread, and I must have missed that looking at Burford.

 

 

Reading financial reports including the footnotes. I have not done the in-depth work, so DYOR please.

 

Right but you were the one who brought up revenue recognition changes.  So could you explain at least what you mean by that?

 

 

Read the financial reports across years, including the footnotes. You said that you looked at the company - without reading the reports? Maybe standards have changed over time, and hence the amendment.

 

Yes ok.  I've looked at the company 6 months ago.  I don't remember every footnote I read.  I'm not long the company and long something else.  If anything, when I come across the footnote I want to make sure I am reading the same thing you are reading and not seeing one revenue change when you saw another. 

[writser]

Reading financial reports including the footnotes. I have not done the in-depth work, so DYOR please.

 

Lol, what the fuck. Cameronfen is actually posting some useful insights in this thread. For free. And here comes the guy constantly opening shit topics with zero content, who is always begging for jobs and other people's analyis, asking some arbitrary questions after cursory research and when he is asked to clarify he has the guts to be snarky and say DYOR? Get the fuck outta here. "DYOR" is pretty much the only correct reply to _EVERY_ _SINGLE_ _POST_ you made here.

 

If anyone has come across useful industry or other reports on the railroad industry in Northern America, please let me know.

 

Thanks

 

Good afternoon,

 

Does anyone have information on GMT and or Adelphi Capital? In particular, culture / strategy / track record.

 

Thanks

 

Would be keen to hear about key metrics /drivers and how the current high NTM valuation can be justified accordingly.

 

Gents -

 

Please are there old issues of OID anywhere? Would be very keen to read the first editions. Was told the quality deteriorated in the end.

 

Thank you

 

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/wing-us/

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/key-financials-for-private-european-companies/

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/making-the-most-out-of-conferences-whom-to-meet-and-what-to-ask/

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/old-issues-of-outstanding-investor-digest/

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/forensic-accounting-checklist/

http://www.cornerofberkshireandfairfax.ca/forum/events/networking-london/

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/ptec-ln-playtech/

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/shp-ln-shire/

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/aa-aalondon/

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/railroads-in-na-industry-reports/

http://www.cornerofberkshireandfairfax.ca/forum/general-discussion/gmt-capital-and-adelphi-capital/

 

I could go on and on. It's all shit. Your post history here is a disgrace to this forum. Up to a level I'm fine with you adding zero value to this board, but at least you could try to be a bit nicer to people who actually contribute something and are even trying to help you despite you being obnoxious and despite that the fact that you are obviously only leeching on this forum when it helps you with your job. If I was your manager and I saw you behaving like this on this forum I'd fire you instantly.

 

End of rant, please continue discussing this interesting company 8) .

[Pondside47]

Founders and directors own about 10% of the company (CEO CIO own about 3% each now). Originally Burford outsourced management to the CEO (Bogart) and CIO (Molot) the reorganization a few years back gave them 12% (6% each) in turn for no longer getting a a management fee, that was the start of the evolution from a fund that should trade at a discount to NAV to an operating entity that should be valued on FCF. The founders sold 1/3 of their 6% positions and still have a large majority of their net worth tied to the company. I would be more concerned with another reduction of 1/3, but taking some off the table after a 10 year 15 bagger is something I personally would do as well...

 

Mark to market accounting or not, what matters is the economic reality of their earnings. If you don't think it makes sense to mark up the Peterson case when they have sold on secondary market multiple times not marking to market would be MORE questionable. I'm not sure they would have a choice in some of these material matters.

 

 

It's not more aggressive it's a natural progression of their business.

 

How to you estimate the future cash flows for any firm? Why is this any different? They will win some, lose some, settle some, and if they do something similar to the last (just like a asset manager) they will create value.

 

Hopefully they don't get divorced?

 

AIM: they have a bond prospectus on the main market which requires them to have the more detailed audit that is required (my understanding), they will move up eventually I'd imagine.

 

 

I assume you have looked at the accounting change over time. How has it materially changed, if at all?

 

Taking money off the table is fine, but the timing is a signal to investors as they know the business' prospects (hopefully) inside out.

 

Regarding valuation: valuing Burford is certainly different than valuing most businesses. One essentially has to assume a forward IRR and the capital that generates the return. I.e., there is no way as an outsider/investor to triangulate the forward IRR.

 

The way I became comfortable buying the stock at this price is to consider the downside. I think it is fairly certain in 5 years the book value will get to the current market cap. Consider the Petersen case, and consider the momentum of the industry. Also consider Burford didn’t raise capital for 8 years between 2010 and 2018. The book increase in between was due to internal cash generation. If this industry turns to a 7~10% return on equity after 5 years, which I think is a fairly aggressive and pessimistic assumption, AND it stops growing, what kind of multiple will people pay for a dividend stream that is 100% uncorrelated with the market? I think we as value investor tends to disregard what the rest of the world thinks but keep in mind we are only 5% of world. How many assets are out there in the world that is uncorrelated with the market that institutional investor can get their hands on?

 

Also I think the management is very important. Bentham IMF actually started way earlier than Burford and they are nowhere as successful as Burford. Why?

 

I wouldn’t say the management knows the industry prospect inside out so their selling 1/3 stake is a negative sign. I would say nobody knows the exact prospect of the industry 5-10 years out. The only way to you can get a sense of where this is going is to talk to the partners at Amlaw 100 firms. I don’t have access to those people unless I got to events such as litigation dispute week London 2019. However, consider the institutional investor who are giving tons of money to Burford. They do have access to those partners. Why are they putting so much money into these funds? Is it soely for diversification?

 

Again the reason Burford is bigger than everyone else is mainly due to figuring out the profitabilty of the whole raise a lot of capital when your trading significantly above book value strategy and not because they are more skilled underwriters than anyone else. Bentham IRRs are in the 80-90% range.  It is untrue that Burford didn't raise capital between 2010 and 2018.  In fact they rasied capital very ofter during that time (750m usd worth of capital actually during that time).  Raising capital is also the smart move in Burford's situation anyways.  You can go to the news section of their site and search "capital raises": https://www.burfordcapital.com/newsroom/?q=capital+raises&type=all .  Burford will be a profitable investment I think, but they don't have any magic that everyone else doesn't have.

 

Capital raise by issuing bond, yes. No equity raise after 2010, the the point that you are trying to make that they raised equity selling stocks at a premium to book isn’t valid. I believe for a while they traded at discount to book because they were paying management fees. But you are right they are ahead of others on the financial engineering side, but wouldn’t that be the reason to own the stock? The two guys running Burford just seem to be so much more than great litigation lawyers. They have the vision while other people are followers. I think in a nascent expanding industry investing alongside the visionaries would be the way to go.

 

The issue I have with Benthem and LIT is that they were pretty much Australian class action lawsuit funder until recently. I believe LIT hired a guy from Burford to go into commercial litigation. They just don’t have the track record in what they are going into to warrant me purchasing their stock. Also I believe LIT is going with a capital light model that profits from management fees while Burford has significant performance fee structure. I think Burford alignment of interest with their fund investor makes me sleep better.

[Gregmal]

Glorious last post lol(writser). Very true though. Part of being a member of a community, especially a free one, is to chip in, even if only once in a while.

[Pondside47]

Even though I’m long Burdford I have read all the BENTHEM reports going way back. I can’t even figure out who is running the company now. They’ve changed management team and direction so much that I can’t remember who’s actually in charge during what period. LIT delisted their stock from Australia to relist in London. These dynamics reminds me of the Japanese ramen shops run by Japanese  who take it as a religion vs the rest of the shops that sells ramen, Thai noodle , pho, and Taiwanese noodle at the same time. All shops sell ramen at 12-15 dollar but who’s here for the long haul? I’m saying this because all these companies trade on multiples of earnings.  What if they decide to liquidate? Im just not convinced LIT.L is here for the long term.

[cameronfen]

Even though I’m long Burdford I have read all the BENTHEM reports going way back. I can’t even figure out who is running the company now. They’ve changed management team and direction so much that I can’t remember who’s actually in charge during what period. LIT delisted their stock from Australia to relist in London. These dynamics reminds me of the Japanese ramen shops run by Japanese  who take it as a religion vs the rest of the shops that sells ramen, Thai noodle , pho, and Taiwanese noodle at the same time. All shops sell ramen at 12-15 dollar but who’s here for the long haul? I’m saying this because all these companies trade on multiples of earnings.  What if they decide to liquidate? Im just not convinced LIT.L is here for the long term.

 

I don't know if LIT.L is in it for the long haul, the only thing I do know is the economics of stock issuance invest at 70% irr is a winning strategy, and uplisting to a more liquid exchange and issuing shares is exactly what you want to do if you are following that strategy. 

[cameronfen]

Founders and directors own about 10% of the company (CEO CIO own about 3% each now). Originally Burford outsourced management to the CEO (Bogart) and CIO (Molot) the reorganization a few years back gave them 12% (6% each) in turn for no longer getting a a management fee, that was the start of the evolution from a fund that should trade at a discount to NAV to an operating entity that should be valued on FCF. The founders sold 1/3 of their 6% positions and still have a large majority of their net worth tied to the company. I would be more concerned with another reduction of 1/3, but taking some off the table after a 10 year 15 bagger is something I personally would do as well...

 

Mark to market accounting or not, what matters is the economic reality of their earnings. If you don't think it makes sense to mark up the Peterson case when they have sold on secondary market multiple times not marking to market would be MORE questionable. I'm not sure they would have a choice in some of these material matters.

 

 

It's not more aggressive it's a natural progression of their business.

 

How to you estimate the future cash flows for any firm? Why is this any different? They will win some, lose some, settle some, and if they do something similar to the last (just like a asset manager) they will create value.

 

Hopefully they don't get divorced?

 

AIM: they have a bond prospectus on the main market which requires them to have the more detailed audit that is required (my understanding), they will move up eventually I'd imagine.

 

 

I assume you have looked at the accounting change over time. How has it materially changed, if at all?

 

Taking money off the table is fine, but the timing is a signal to investors as they know the business' prospects (hopefully) inside out.

 

Regarding valuation: valuing Burford is certainly different than valuing most businesses. One essentially has to assume a forward IRR and the capital that generates the return. I.e., there is no way as an outsider/investor to triangulate the forward IRR.

 

The way I became comfortable buying the stock at this price is to consider the downside. I think it is fairly certain in 5 years the book value will get to the current market cap. Consider the Petersen case, and consider the momentum of the industry. Also consider Burford didn’t raise capital for 8 years between 2010 and 2018. The book increase in between was due to internal cash generation. If this industry turns to a 7~10% return on equity after 5 years, which I think is a fairly aggressive and pessimistic assumption, AND it stops growing, what kind of multiple will people pay for a dividend stream that is 100% uncorrelated with the market? I think we as value investor tends to disregard what the rest of the world thinks but keep in mind we are only 5% of world. How many assets are out there in the world that is uncorrelated with the market that institutional investor can get their hands on?

 

Also I think the management is very important. Bentham IMF actually started way earlier than Burford and they are nowhere as successful as Burford. Why?

 

I wouldn’t say the management knows the industry prospect inside out so their selling 1/3 stake is a negative sign. I would say nobody knows the exact prospect of the industry 5-10 years out. The only way to you can get a sense of where this is going is to talk to the partners at Amlaw 100 firms. I don’t have access to those people unless I got to events such as litigation dispute week London 2019. However, consider the institutional investor who are giving tons of money to Burford. They do have access to those partners. Why are they putting so much money into these funds? Is it soely for diversification?

 

Again the reason Burford is bigger than everyone else is mainly due to figuring out the profitabilty of the whole raise a lot of capital when your trading significantly above book value strategy and not because they are more skilled underwriters than anyone else. Bentham IRRs are in the 80-90% range.  It is untrue that Burford didn't raise capital between 2010 and 2018.  In fact they rasied capital very ofter during that time (750m usd worth of capital actually during that time).  Raising capital is also the smart move in Burford's situation anyways.  You can go to the news section of their site and search "capital raises": https://www.burfordcapital.com/newsroom/?q=capital+raises&type=all .  Burford will be a profitable investment I think, but they don't have any magic that everyone else doesn't have.

 

Capital raise by issuing bond, yes. No equity raise after 2010, the the point that you are trying to make that they raised equity selling stocks at a premium to book isn’t valid. I believe for a while they traded at discount to book because they were paying management fees. But you are right they are ahead of others on the financial engineering side, but wouldn’t that be the reason to own the stock? The two guys running Burford just seem to be so much more than great litigation lawyers. They have the vision while other people are followers. I think in a nascent expanding industry investing alongside the visionaries would be the way to go.

 

The issue I have with Benthem and LIT is that they were pretty much Australian class action lawsuit funder until recently. I believe LIT hired a guy from Burford to go into commercial litigation. They just don’t have the track record in what they are going into to warrant me purchasing their stock. Also I believe LIT is going with a capital light model that profits from management fees while Burford has significant performance fee structure. I think Burford alignment of interest with their fund investor makes me sleep better.

 

Yes you are right I stand corrected.  However they did issue shares in the purchase of then number 2 player gretchen keller. This was the purchase that really cemented them as the number 1 player.  The purchase seems to have been an excellent one though.

 

Edits: Also as you alluded to I think issuing bonds and executing this playbook basically has the same effect as issuing stock.  Its just now the stock is at 3x book value and not book. 

 

edit: As far as track record it is true this industry arose out of Australian class action, which is why so many players are Australian.  That being said now Bentham has a record for outside Australia that is quite good on their annual reports.  Its a chart that has ROIC for 10 or so years and US is at 80% and Rest of World amd is at 150% There US record is less impressive but still decent and on par with Burford.  I can't say anything for LIT.L other than whenever anybody goes into the US or Singapore or Canada they generate outsized returns.  I mainly think about the private firms like parabellum, pravati and vannin, in addition to firms like Bentham.  While I don't have returns and irrs for the private firms, basically everyone (like vannin which pulled an ipo) is asking for funding to expand in these markets due to outsized returns.  The point is valid though and I will think more closely on LIT. 

[reader]

Founders and directors own about 10% of the company (CEO CIO own about 3% each now). Originally Burford outsourced management to the CEO (Bogart) and CIO (Molot) the reorganization a few years back gave them 12% (6% each) in turn for no longer getting a a management fee, that was the start of the evolution from a fund that should trade at a discount to NAV to an operating entity that should be valued on FCF. The founders sold 1/3 of their 6% positions and still have a large majority of their net worth tied to the company. I would be more concerned with another reduction of 1/3, but taking some off the table after a 10 year 15 bagger is something I personally would do as well...

 

Mark to market accounting or not, what matters is the economic reality of their earnings. If you don't think it makes sense to mark up the Peterson case when they have sold on secondary market multiple times not marking to market would be MORE questionable. I'm not sure they would have a choice in some of these material matters.

 

 

It's not more aggressive it's a natural progression of their business.

 

How to you estimate the future cash flows for any firm? Why is this any different? They will win some, lose some, settle some, and if they do something similar to the last (just like a asset manager) they will create value.

 

Hopefully they don't get divorced?

 

AIM: they have a bond prospectus on the main market which requires them to have the more detailed audit that is required (my understanding), they will move up eventually I'd imagine.

 

 

I assume you have looked at the accounting change over time. How has it materially changed, if at all?

 

Taking money off the table is fine, but the timing is a signal to investors as they know the business' prospects (hopefully) inside out.

 

Regarding valuation: valuing Burford is certainly different than valuing most businesses. One essentially has to assume a forward IRR and the capital that generates the return. I.e., there is no way as an outsider/investor to triangulate the forward IRR.

 

The way I became comfortable buying the stock at this price is to consider the downside. I think it is fairly certain in 5 years the book value will get to the current market cap. Consider the Petersen case, and consider the momentum of the industry. Also consider Burford didn’t raise capital for 8 years between 2010 and 2018. The book increase in between was due to internal cash generation. If this industry turns to a 7~10% return on equity after 5 years, which I think is a fairly aggressive and pessimistic assumption, AND it stops growing, what kind of multiple will people pay for a dividend stream that is 100% uncorrelated with the market? I think we as value investor tends to disregard what the rest of the world thinks but keep in mind we are only 5% of world. How many assets are out there in the world that is uncorrelated with the market that institutional investor can get their hands on?

 

Also I think the management is very important. Bentham IMF actually started way earlier than Burford and they are nowhere as successful as Burford. Why?

 

I wouldn’t say the management knows the industry prospect inside out so their selling 1/3 stake is a negative sign. I would say nobody knows the exact prospect of the industry 5-10 years out. The only way to you can get a sense of where this is going is to talk to the partners at Amlaw 100 firms. I don’t have access to those people unless I got to events such as litigation dispute week London 2019. However, consider the institutional investor who are giving tons of money to Burford. They do have access to those partners. Why are they putting so much money into these funds? Is it soely for diversification?

 

Again the reason Burford is bigger than everyone else is mainly due to figuring out the profitabilty of the whole raise a lot of capital when your trading significantly above book value strategy and not because they are more skilled underwriters than anyone else. Bentham IRRs are in the 80-90% range.  It is untrue that Burford didn't raise capital between 2010 and 2018.  In fact they rasied capital very ofter during that time (750m usd worth of capital actually during that time).  Raising capital is also the smart move in Burford's situation anyways.  You can go to the news section of their site and search "capital raises": https://www.burfordcapital.com/newsroom/?q=capital+raises&type=all .  Burford will be a profitable investment I think, but they don't have any magic that everyone else doesn't have.

 

Capital raise by issuing bond, yes. No equity raise after 2010, the the point that you are trying to make that they raised equity selling stocks at a premium to book isn’t valid. I believe for a while they traded at discount to book because they were paying management fees. But you are right they are ahead of others on the financial engineering side, but wouldn’t that be the reason to own the stock? The two guys running Burford just seem to be so much more than great litigation lawyers. They have the vision while other people are followers. I think in a nascent expanding industry investing alongside the visionaries would be the way to go.

 

The issue I have with Benthem and LIT is that they were pretty much Australian class action lawsuit funder until recently. I believe LIT hired a guy from Burford to go into commercial litigation. They just don’t have the track record in what they are going into to warrant me purchasing their stock. Also I believe LIT is going with a capital light model that profits from management fees while Burford has significant performance fee structure. I think Burford alignment of interest with their fund investor makes me sleep better.

 

Pondside47,

They last raised equity on October 2, 2018

 

https://www.burfordcapital.com/newsroom/burford-capital-raises-more-than-250-million-for-continuing-expansion/

 

"Successful equity placing of 10,411,898 new ordinary shares in Burford Capital achieved"

"Burford Capital Limited (“Burford” or the “Company”), the leading global finance and investment management firm focused on law, is pleased to announce that 10,411,898 new Ordinary Shares (the “Placing Shares”) have been placed with existing and new institutional investors and were placed at a price of 1850 pence per share via an accelerated bookbuild (the “Placing”). The Placing raised approximately £192.6 million (US$251.2 million) before expenses and the Placing Shares represent approximately 5 per cent. of the issued ordinary share capital of the Company prior to the Placing. The Placing was well oversubscribed and was priced at a discount of 2.86% to Burford’s volume-weighted average share price since the release of its interim results."

 

[peterHK]

Founders and directors own about 10% of the company (CEO CIO own about 3% each now). Originally Burford outsourced management to the CEO (Bogart) and CIO (Molot) the reorganization a few years back gave them 12% (6% each) in turn for no longer getting a a management fee, that was the start of the evolution from a fund that should trade at a discount to NAV to an operating entity that should be valued on FCF. The founders sold 1/3 of their 6% positions and still have a large majority of their net worth tied to the company. I would be more concerned with another reduction of 1/3, but taking some off the table after a 10 year 15 bagger is something I personally would do as well...

 

Mark to market accounting or not, what matters is the economic reality of their earnings. If you don't think it makes sense to mark up the Peterson case when they have sold on secondary market multiple times not marking to market would be MORE questionable. I'm not sure they would have a choice in some of these material matters.

 

 

It's not more aggressive it's a natural progression of their business.

 

How to you estimate the future cash flows for any firm? Why is this any different? They will win some, lose some, settle some, and if they do something similar to the last (just like a asset manager) they will create value.

 

Hopefully they don't get divorced?

 

AIM: they have a bond prospectus on the main market which requires them to have the more detailed audit that is required (my understanding), they will move up eventually I'd imagine.

 

 

I assume you have looked at the accounting change over time. How has it materially changed, if at all?

 

Taking money off the table is fine, but the timing is a signal to investors as they know the business' prospects (hopefully) inside out.

 

Regarding valuation: valuing Burford is certainly different than valuing most businesses. One essentially has to assume a forward IRR and the capital that generates the return. I.e., there is no way as an outsider/investor to triangulate the forward IRR.

 

The way I became comfortable buying the stock at this price is to consider the downside. I think it is fairly certain in 5 years the book value will get to the current market cap. Consider the Petersen case, and consider the momentum of the industry. Also consider Burford didn’t raise capital for 8 years between 2010 and 2018. The book increase in between was due to internal cash generation. If this industry turns to a 7~10% return on equity after 5 years, which I think is a fairly aggressive and pessimistic assumption, AND it stops growing, what kind of multiple will people pay for a dividend stream that is 100% uncorrelated with the market? I think we as value investor tends to disregard what the rest of the world thinks but keep in mind we are only 5% of world. How many assets are out there in the world that is uncorrelated with the market that institutional investor can get their hands on?

 

Also I think the management is very important. Bentham IMF actually started way earlier than Burford and they are nowhere as successful as Burford. Why?

 

I wouldn’t say the management knows the industry prospect inside out so their selling 1/3 stake is a negative sign. I would say nobody knows the exact prospect of the industry 5-10 years out. The only way to you can get a sense of where this is going is to talk to the partners at Amlaw 100 firms. I don’t have access to those people unless I got to events such as litigation dispute week London 2019. However, consider the institutional investor who are giving tons of money to Burford. They do have access to those partners. Why are they putting so much money into these funds? Is it soely for diversification?

 

Again the reason Burford is bigger than everyone else is mainly due to figuring out the profitabilty of the whole raise a lot of capital when your trading significantly above book value strategy and not because they are more skilled underwriters than anyone else. Bentham IRRs are in the 80-90% range.  It is untrue that Burford didn't raise capital between 2010 and 2018.  In fact they rasied capital very ofter during that time (750m usd worth of capital actually during that time).  Raising capital is also the smart move in Burford's situation anyways.  You can go to the news section of their site and search "capital raises": https://www.burfordcapital.com/newsroom/?q=capital+raises&type=all .  Burford will be a profitable investment I think, but they don't have any magic that everyone else doesn't have.

 

Capital raise by issuing bond, yes. No equity raise after 2010, the the point that you are trying to make that they raised equity selling stocks at a premium to book isn’t valid. I believe for a while they traded at discount to book because they were paying management fees. But you are right they are ahead of others on the financial engineering side, but wouldn’t that be the reason to own the stock? The two guys running Burford just seem to be so much more than great litigation lawyers. They have the vision while other people are followers. I think in a nascent expanding industry investing alongside the visionaries would be the way to go.

 

The issue I have with Benthem and LIT is that they were pretty much Australian class action lawsuit funder until recently. I believe LIT hired a guy from Burford to go into commercial litigation. They just don’t have the track record in what they are going into to warrant me purchasing their stock. Also I believe LIT is going with a capital light model that profits from management fees while Burford has significant performance fee structure. I think Burford alignment of interest with their fund investor makes me sleep better.

 

Yes you are right I stand corrected.  However they did issue shares in the purchase of then number 2 player gretchen keller. This was the purchase that really cemented them as the number 1 player.  The purchase seems to have been an excellent one though.

 

Edits: Also as you alluded to I think issuing bonds and executing this playbook basically has the same effect as issuing stock.  Its just now the stock is at 3x book value and not book. 

 

edit: As far as track record it is true this industry arose out of Australian class action, which is why so many players are Australian.  That being said now Bentham has a record for outside Australia that is quite good on their annual reports.  Its a chart that has ROIC for 10 or so years and US is at 80% and Rest of World amd is at 150% There US record is less impressive but still decent and on par with Burford.  I can't say anything for LIT.L other than whenever anybody goes into the US or Singapore or Canada they generate outsized returns.  I mainly think about the private firms like parabellum, pravati and vannin, in addition to firms like Bentham.  While I don't have returns and irrs for the private firms, basically everyone (like vannin which pulled an ipo) is asking for funding to expand in these markets due to outsized returns.  The point is valid though and I will think more closely on LIT.

 

Let's think about that logically. IMF Bentham's stock has really not done very much for a few years. Why? They lose money. Revenues have sunk 50% at times. They pay irregular dividends. Clearly their 150% IRR's are NOT translating into business value or stock performance. IMF Bentham BV/Share has gone nowhere in 5 years.

 

Now let's look at Burford: they've grown consistently, they've generated cash as one can figure out very simply by looking at BV less any stock issuance: in the last 5 years they've issued $250mn in stock and $744 million in debt, and their portfolio has gone from $200mn to $1.6bn (implying $600mn of value created). tangible BV per share has increased every year. Burfords returns are translating into increasing economic value of the firm through a wide variety of measures: cash, growth in portfolio value, BV/Share etc. 

 

CLEARLY Burford is doing something very very very differently from IMF Bentham, so maybe let's stop using them as comps now? Maybe instead of pointing to IMF as what Burford is going to turn into, lets focus on what Burford is doing differently to make it such a vastly superior business over the last 5 years?

 

Just a thought.

 

 

[Foreign Tuffett]

Interesting conversation about this name on Twitter:

 

https://twitter.com/_inpractise/status/1148005049961975809

 

I agree with writser that cameronfen has posted some very well-informed thoughts in this thread. I'm not sure what tol1's malfunction is.

[cameronfen]

Interesting conversation about this name on Twitter:

 

https://twitter.com/_inpractise/status/1148005049961975809

 

I agree with writser that cameronfen has posted some very well-informed thoughts in this thread. I'm not sure what tol1's malfunction is.

Thanks for this.  I noticed they mentioned TAM, which they were unsure of.  Bentham has a good chart detailing the TAM penetrated and not in the big markets (UK, Australia, US, Canada):  https://www.imf.com.au/docs/default-source/site-documents/investor-presentation-fy2018-full-year-results (pg 6 for those that don't want to DYOD)

[peterHK]

Interesting conversation about this name on Twitter:

 

https://twitter.com/_inpractise/status/1148005049961975809

 

I agree with writser that cameronfen has posted some very well-informed thoughts in this thread. I'm not sure what tol1's malfunction is.

Thanks for this.  I noticed they mentioned TAM, which they were unsure of.  Bentham has a good chart detailing the TAM penetrated and not in the big markets (UK, Australia, US, Canada):  https://www.imf.com.au/docs/default-source/site-documents/investor-presentation-fy2018-full-year-results (pg 6 for those that don't want to DYOD)

 

I get ~$75bn in TAM there based on TAM as a % of total legal spend based on their figures.

[Pondside47]

May I add that world legal spend is only part of the TAM? The Peterson case is an example of them buying a stake in the actually reward asset. The annual legal reward is way more than the legal spent.

[cameronfen]

May I add that world legal spend is only part of the TAM? The Peterson case is an example of them buying a stake in the actually reward asset. The annual legal reward is way more than the legal spent.

 

I think when Bentham talks about TAM they are talking about the cost of financing the asset not the total reward.  So in this case, the Peterson case only counts as 17m in the TAM, which is good news. 

[peterHK]

May I add that world legal spend is only part of the TAM? The Peterson case is an example of them buying a stake in the actually reward asset. The annual legal reward is way more than the legal spent.

 

I think when Bentham talks about TAM they are talking about the cost of financing the asset not the total reward.  So in this case, the Peterson case only counts as 17m in the TAM, which is good news.

 

That's a great point.

 

Should note that Petersen is like a 10 sigma outlier; I wouldn't be modeling one of those coming along often at all (I would tbh never count on one again).

[Pondside47]

May I add that world legal spend is only part of the TAM? The Peterson case is an example of them buying a stake in the actually reward asset. The annual legal reward is way more than the legal spent.

 

I think when Bentham talks about TAM they are talking about the cost of financing the asset not the total reward.  So in this case, the Peterson case only counts as 17m in the TAM, which is good news.

 

This is running the risk of being too nuanced but I want to discuss this to further my understanding of the legal industry. In my opinion, what Burford paid for the Peterson case is actually not part of the pie on page 6 of the Benthem presentation. Benthem is talking about total legal fees spend on page 6. That is just fees paid to the lawyers that litigation funders can finance and say pay me a 2x multiple if the case is a win. The 17mm paid is an outright purchase of the reward asset. Think about the hedge fund who bought a stake of the Peteson case from Burford. They paid 100mm for 10%. To them, is the Peterson portion of the TAM 17mm or 100mm?

 

And I agree modeling future Peterson like case would be silly.

[cameronfen]

May I add that world legal spend is only part of the TAM? The Peterson case is an example of them buying a stake in the actually reward asset. The annual legal reward is way more than the legal spent.

 

I think when Bentham talks about TAM they are talking about the cost of financing the asset not the total reward.  So in this case, the Peterson case only counts as 17m in the TAM, which is good news.

 

This is running the risk of being too nuanced but I want to discuss this to further my understanding of the legal industry. In my opinion, what Burford paid for the Peterson case is actually not part of the pie on page 6 of the Benthem presentation. Benthem is talking about total legal fees spend on page 6. That is just fees paid to the lawyers that litigation funders can finance and say pay me a 2x multiple if the case is a win. The 17mm paid is an outright purchase of the reward asset. Think about the hedge fund who bought a stake of the Peteson case from Burford. They paid 100mm for 10%. To them, is the Peterson portion of the TAM 17mm or 100mm?

 

And I agree modeling future Peterson like case would be silly.

So part of legal spend is money that goes to hiring expert witnesses and the like. This is what gets financed by someone like Burford or Bentham.  That's why its depicted as a share of total legal fees as when the asset is originated, it is to pay a law firm the money on behalf of the client.  Although I admit I don't understand exactly what you are getting at. 

[Pondside47]

May I add that world legal spend is only part of the TAM? The Peterson case is an example of them buying a stake in the actually reward asset. The annual legal reward is way more than the legal spent.

 

I think when Bentham talks about TAM they are talking about the cost of financing the asset not the total reward.  So in this case, the Peterson case only counts as 17m in the TAM, which is good news.

 

This is running the risk of being too nuanced but I want to discuss this to further my understanding of the legal industry. In my opinion, what Burford paid for the Peterson case is actually not part of the pie on page 6 of the Benthem presentation. Benthem is talking about total legal fees spend on page 6. That is just fees paid to the lawyers that litigation funders can finance and say pay me a 2x multiple if the case is a win. The 17mm paid is an outright purchase of the reward asset. Think about the hedge fund who bought a stake of the Peteson case from Burford. They paid 100mm for 10%. To them, is the Peterson portion of the TAM 17mm or 100mm?

 

And I agree modeling future Peterson like case would be silly.

So part of legal spend is money that goes to hiring expert witnesses and the like. This is what gets financed by someone like Burford or Bentham.  That's why its depicted as a share of total legal fees as when the asset is originated, it is to pay a law firm the money on behalf of the client.  Although I admit I don't understand exactly what you are getting at.

 

I got confused and thought Petersen case was a direct purchase rather than a financing of the legal process. I was trying to get at page 13 and 14 of this presentation

 

https://www.burfordcapital.com/wp-content/uploads/2019/03/Burford-FY2018-Investor-Presentation.pdf

 

I was trying to make the point that Burford is very innovative in terms of coming up with new ways to monetize their skills. See "Burford's ongoing evolution" on page 5 of https://www.burfordcapital.com/wp-content/uploads/2019/04/BUR-31172-Annual-Report-2018-Web.pdf

 

Anyway I think steering the discussion back to downside potential is probably more helpful.

 

[no_free_lunch]

Regarding the downside.

 

Burford traded at a discount to NAV for the first 5 or 6 years.  It is currently trading at around 3x NAV.  So you could lose 2/3 (or more) of your capital if it reverted to those pricing levels.

 

You are paying for growth.

 

However, maybe it is a high quality GARP candidate?  Or at least a high quality growth company. 

 

[Jerry Capital]

You have to adjust book value for Peterson (whcoh could end up being half of the current market value of the company).

 

Also it traded at a discount to NAV when they paid management fees to CEO and CIO (the reorganization, giving them shares and in sourcing the management to Burford meant in no longer made sense to trade at a discount to NAV).

[peterHK]

Regarding the downside.

 

Burford traded at a discount to NAV for the first 5 or 6 years.  It is currently trading at around 3x NAV.  So you could lose 2/3 (or more) of your capital if it reverted to those pricing levels.

 

You are paying for growth.

 

However, maybe it is a high quality GARP candidate?  Or at least a high quality growth company.

 

I would hesitate to call BV NAV because BUR tends to be slow to mark things up.

[Guest Schwab711]

The implied valuation of Petersen on BUR's BV is $800m as of 12/31/2018. We'll see another ~$200m in income in 1H 2019 due to the latest Petersen sale. BV + USD $200m is fairly accurate.

[_JJ_]

The implied valuation of Petersen on BUR's BV is $800m as of 12/31/2018. We'll see another ~$200m in income in 1H 2019 due to the latest Petersen sale. BV + USD $200m is fairly accurate.

 

Burford owns 61.25% of the Petersen entitlement after the 10% sale. So Petersen income in H1 2019 would be closer to $200m*71.25% = $142.5m.

 

 

 

 

[no_free_lunch]

I would hesitate to call BV NAV because BUR tends to be slow to mark things up.

 

Yes, but that was true back in 2015 and they traded at or below BV.

 

I guess the one difference I see is their AM business is much larger and could justify some of the valuation premium.

[Pondside47]

The implied valuation of Petersen on BUR's BV is $800m as of 12/31/2018. We'll see another ~$200m in income in 1H 2019 due to the latest Petersen sale. BV + USD $200m is fairly accurate.

 

I came up with a different number. Since Burford just sold 10% of its entitlement for 100m, it’s original stake is valued as 1000m on secondary market. However this happened last month so as of year end 2018 it was valued at 800mm on open market. However we know and Burford stressed that they don’t mark it all the way up to 2nd transaction value it is fair to assume it is valued at 600mm x 71.5% = 420mm. The gap from 420m to the full potential reward entitled by Burford has two components.

 

1) Burford is entitled to a bit more than 50% of the Petersen recovery. Based on the Respol case, the formula works out to 1300m to Burford. 71% of that is 923m

2) the Eton Park stake which is directly related to Petersen case result is worth potentially 210m

 

So the gap between full recovery and what’s on the book at the end of 2018 is 700m