BUR.L - Burford Capital

[writser]

I admire your confidence Greg. After this thread was opened you bought a position within 24 hours and considered this a great short term investment while 'not getting hung up on every little arcane detail'. One month later shares are down ~60% and you insist this move is 'totally nothing burger'. Given that it was already a no-brainer for you at 1500p I assume you now have a 75% position or something?

 

As far as I can see the way they handled (and presented) the Napo case looks quite shady, to say the least.

[Mondegreen]

Damage to reputation may be crushing here.

 

How easy will it be to raise money from Sovereign wealth funds in future etc.

 

 

[Gregmal]

I admire your confidence Greg. After this thread was opened you bought a position within 24 hours and considered this a great short term investment while 'not getting hung up on every little arcane detail'. One month later shares are down ~60% and you insist this it 'totally nothing burger'. Given that it was already a no-brainer for you at 1500p I assume you now have a 75% position or something?

 

Writser you love to follow my every move, I am flattered to have the audience!

 

Indeed, I find litigation finance to be appealing, non correlated investment with major secular growth and no lack of funding, and as such took tracker positions across the board with the intention of building a basket portfolio over time. Again, all of which has been plainly and transparently written out here in various threads. Stocks go down, people have differing opinions. Sometimes you lose money. Manage your risk. Thats investing. This name has been written up prior to the mentioning here.

 

Funny though, I've been involved in other threads where equivalent short term gains are dismissed as "that's not being right", although here it's "you must be wrong" even though whats prompting the decline is information that should be new to no one... not sure why theres such animosity from people... maybe I'm just fascinating...

[writser]

Funny though, I've been involved in other threads where equivalent short term gains are dismissed as "that's not being right", although here it's "you must be wrong" even though whats prompting the decline is information that should be new to no one... not sure why theres such animosity from people... maybe I'm just fascinating...

 

I didn't say you were wrong (though so far it seems likely that at least your initial optimism was, well, optimistic). In fact I said I am tempted to get involved as a long. I occasionally feel compelled to point out your bluster because I think it is sometimes misleading and in the past it didn't necessarily match your actions. According to your posts in this topic Burford was a no-brainer at 1500p and the current bear raid is totally nonsensical so it must be the opportunity of a lifetime at 1200p 800p 450p. In that light would you care to share how large your position was yesterday? And how much you added today?

[Gregmal]

Funny though, I've been involved in other threads where equivalent short term gains are dismissed as "that's not being right", although here it's "you must be wrong" even though whats prompting the decline is information that should be new to no one... not sure why theres such animosity from people... maybe I'm just fascinating...

 

I didn't say you were wrong, in fact I said I am tempted to get involved as a long. I occasionally feel compelled to point out your bluster because I think it is a bit misleading and in the past it didn't necessarily match your actions. Reading your posts in this topic Burford seemed to be a no-brainer at 1500p and the current bear raid is totally nonsensical so it must be the opportunity of a lifetime at 570p. In that light would you care to share how large your position was yesterday? And how much you added today?

 

I like the sector yes. It's also clear the transparency with regards to accounting in the sector is whacky or requires some level of comfortability with unverifiable items. As such, on a company by company basis, there is room for shenanigans, as has been touched upon here previously. Mainly why I chose a broader approach to investing in this area. Enthusiasm for an idea should not be confused with "the entire farm is to be bet", maybe we should all have disclaimers under our posts... Contrarily, save for a few write-ups or updates, I rarely even mention my bet the farm positions. The ones that garner enough attention on investing forum are often the controversial and riskier ones(sans BRK here). My BUR position was 1.1% and today is .8 after adding. Heck I even stated yesterday this was going to get crushed today. Maybe I should have reversed course, shorted, then rebought... I am losing money on this one... really fast. I know. I'm just not sure why you focus so heavily certain things I do or misrepresent my positions(you did the same thing in PACB). Anything else?

[Liberty]

Whoa

[writser]

I'm just not sure why you focus so heavily certain things I do or misrepresent my positions(you did the same thing in PACB).

 

Well, because discussing stocks on this forum is basically useless if everybody starts blustering in every topic with complete certainty: "this is a no-brainer", "I know people in the industry this deal will close", "this short report is total nonsense" while owning 0.x% or 1.x% positions. So I occasionally point that out. Don't take it personal.

 

I'll let the smart people get back on topic.

[Gregmal]

I'm just not sure why you focus so heavily certain things I do or misrepresent my positions(you did the same thing in PACB).

 

Well, because discussing stocks on this forum is basically useless if everybody starts blustering in every topic with complete certainty: "this is a no-brainer", "I know people in the industry this deal will close", "this short report is total nonsense" while owning 0.x% or 1.x% positions. So I occasionally point that out. Don't take it personal.

 

I'll let the smart people get back on topic.

 

We all just have opinions. Perhaps confidence(even a little arrogance) and certainty are confused. It's a pretty much free membership here and the quality is derived from people chipping in where they can. Its up to the individual to determine how useful they find the info. Mentioning that I work with some UK based lawyers that have experience with regulatory M&A and that they think the deal will close isn't guaranteeing anyone anything. I try to be as transparent as possible, definitely much moreso than most people...I dont mind taking heat or even a little good natured trolling.

 

Back on topic, bought my last piece to fill out the desired BUR allocation at 418. Total average cost today 530s. Average cost on entire position is 870. If its legit, can't think of a better opportunity to add. Its a 1% position and from here I intend to let nature take its course. Finance companies can disappear overnight. I have no inside info so if its fraud I lost a around 1.5%. Good luck to all.

[Guest Schwab711]

Seriously, it's a fraud.

[wachtwoord]

The Muddy Waters report really has nothing new :/

 

It's facinating to see how repeating known facts by a well-known entity stating they are short affects the share price this much.

 

I don't like anti-manipulation laws in general (laisez-faire all the way) but if there are  anti-manipulation laws how is this condoned by regulators?

 

Edit:

 

No position btw. I read the thread earlier and thought the business is very interesting but didn't feel like I had enough information to value it. Now its much cheapers its much more tempting but the same issue remains ...

[SHDL]

No position btw. I read the thread earlier and thought the business is very interesting but didn't feel like I had enough information to value it. Now its much cheapers its much more tempting but the same issue remains ...

 

I’m in the same boat. 

 

So far, this seems to me like a pretty well conceived/timed short raid, all things considered.  I don’t think I will get involved either way but I certainly look forward to learning something useful from this.

[Foreign Tuffett]

I'm not smart or informed enough to figure out what's going on here, but I have skimmed this thread and the Muddy Waters report.

 

My conclusion is that Schwab711 is a god who dwells among us. He was asking some really good questions about how Burford was marking its positions weeks ago.

 

 

[Gregmal]

FWIW, using just the AM side and annualizing management fees, you can rather cautiously get to 450-500 on that alone. The liabilities can likely be offset by the Peterson stake alone... leaving everything else.... pretty much free, IF it's real...

 

Pretty spectacular how one person's opinion, based entirely off of already known public information can effect the valuation like this. But that what you get when you list on a shitty exchange and use confusing and sketchy accounting metrics(even though they are doing so not by choice, but because IFRS requires them to). 

 

 

[meiroy]

If it weren't for the fact that the market is crashing and we're all going to die I'd buy it here for the pop.

 

[cmlber]

Pretty spectacular how one person's opinion, based entirely off of already known public information can effect the valuation like this.

 

Are you suggesting you (and most longs) already knew about the specific cases referenced with aggressive accounting? 

[Foreign Tuffett]

Pretty spectacular how one person's opinion, based entirely off of already known public information can effect the valuation like this.

 

Are you suggesting you (and most longs) already knew about the specific cases referenced with aggressive accounting?

 

Greg, do you really think most investors holding Burford's stock were familiar with the intricate details of the Napo deal, including Invesco's involvement? How about all the twists and turns of Burford's arcane IRR and ROIC calculations? Were you, yourself, aware of all the info included in the report? Of course not.

[cameronfen]

FWIW, using just the AM side and annualizing management fees, you can rather cautiously get to 450-500 on that alone. The liabilities can likely be offset by the Peterson stake alone... leaving everything else.... pretty much free, IF it's real...

 

Pretty spectacular how one person's opinion, based entirely off of already known public information can effect the valuation like this. But that what you get when you list on a shitty exchange and use confusing and sketchy accounting metrics(even though they are doing so not by choice, but because IFRS requires them to).

 

At this point, I think its a buy.  Maybe a small position, but no way this is worth book value. 

 

Basically, anyone who was reading this forum critically basically knew they were smoothing and juicing earnings (hat tip Schwab and nomax) in ways that were sketchy, but not illegal as far as the accounting goes.  I don't think people knew the intricacies of the Napo deal, but you can guess there was some shady stuff going on that we didn't know about just based on there dissembling behind Peterson and mark to market.  MW didn't really say anything unexpected, although the Napo accusation and Desert Ridge were new examples. 

 

Also, MW ROIC calculations are wrong, which is a big part of the short.  They use committed capital divided by net returns which is problematic because over 50% of total capital was deployed in the last 2 years.  Most of those cases are not resolved so it's unfair to use the entire capital commitment as the denominator for returns that are likely not even close to being closed.  This is why earlier years had good ROIC calcs but 2018 and 1H2019 had terrible.  Additionally Peterson which external parties value at 1-2billion alone and the other 3 big cases skew IRRs a lot.  Thirdly they seem to use total capital committed.  Burford uses total capital deployed.  Neither is quite right.  80% of the capital committed is actually used.  That should be the number in the denominator if you use capital committed. 

 

MW also way exaggerating that liquidity thing.  They can literally just sell Peterson and fix that problem and the rest of their investments are not just going to return cost.  Debt is due at 2022 at the earliest. 

 

Just thinking back of the envelope: What is left over of Peterson is worth the debt.  They still have $800m investments leftover at cost.  Assuming a 20% IRR which is lower than what Burford currently reports and is likely lower than correcting MW ROIC calc (Peterson gains by itself recovers all invested capital), on the 800m investment probably makes it worth 1.5x book (after taking out overhead).  Assuming a 20% IRR  the sovereign wealth fund would deliver 150-200m USD (3 years times the payout on IRR - internal stake) in earnings alone (although this fund is only 25% committed).  I didn't look at the funds specifically yet, but they have 2.8b in AUM. If they only keep 1b of the 1.8b remaining in assets, that still is a perpetual earning stream of 40m dollars a year (assuming a 2 and 20 format - costs).  That is worth another 400m USD conservatively.  This is just back of the envelope, but there are multiple ways to win. 

 

Based on this short and the Jumia short, I think the big shorting companies are providing research that looks unbiased and damning but is very biased and designed to cause a huge fall in the stock.  The whole teasing the announcement and providing enough information to identify the stock and causing people to panic was genius and much respect, although maybe that treads into market manipulation (although no one would be complaining if it were a long).  I think they are trading on their credibility only to move markets and twisting the information for maximal gain.  Its a profitable strategy for them but I think looking at these shorts after they announce may be a profitable venture.  I think Burford was a little too expensive for my taste before, but clearly people just panic based on a big name shorting. 

[Guest Schwab711]

Thank you for the really nice compliment Foreign Truffett!

 

As to the MW report, if this thread didn't exist and you learned all of that information for the first time it would be a big deal. Learning all the information in little pieces never feels as bad even if it has the exact same financial result.

 

I have a hard time understanding how anyone can look at the AM fee income when the AM was just found to be manipulating their investment results/asset marks! This is an example of already being exposed to bad information making you less likely to appreciate its importance. They just lied to their investors for years and years in a trust business. The AM business is dead. BUR would be lucky if all its investors did was walk away. BUR probably has to restate their financials.

[Gregmal]

Pretty spectacular how one person's opinion, based entirely off of already known public information can effect the valuation like this.

 

Are you suggesting you (and most longs) already knew about the specific cases referenced with aggressive accounting?

 

Greg, do you really think most investors holding Burford's stock were familiar with the intricate details of the Napo deal, including Invesco's involvement? How about all the twists and turns of Burford's arcane IRR and ROIC calculations? Were you, yourself, aware of all the info included in the report? Of course not.

 

Some but definitely not all. It depends how you frame it though.

 

For instance, Jaguar... One of the advantages this company is said to have, as a market leader is resources and pull. So lets put Jaguar into the context of what it is. This could have been an outcome that fell within the reasonably expected outcomes range. There will be investments that dont work and due to the binary nature, they are 0's. Burford, could've just taken that. Instead, they used their resources and leveraged a transaction to return something for shareholders. They marked it quite aggressively, and then wrote it down when it became clear it was pennies on the dollar. It could have just been called a 0 from day 1. They did a little better.

 

Some of the other instances though, no. And frankly its not worth the time going through every case. Some of the MW talking points contested 7 figure sums... I dont need to spend hours navigating and researching Tesla's 8-9 figure ZEV credits to know that bigger picture the company is both unprofitable and challenged. Its largely a rounding error that won't produce a smoking gun unless literally everything is dramatically cooked. Which once again comes back to the notion discussed in other threads, that fraud does not necessarily equal zero...The key here IMO is whether than can continue to operate with the reputation damage. Financial companies are primarily built on trust and can go from healthy to out of business real quick for no reason other than hearsay as we saw during the crisis. Perhaps this is the test of how strong their "relationships" that they tout are.

 

We all knew the company was aggressive and overstating things, however the notion of these nefarious games and complete disaster doesn't quite vibe with a company, who even critics acknowledged, over the past year or so, has made significant effort to be more transparent. Why would they do this if it was all a house of cards? The formula was clearly working if the goal was to orchestrate a scheme! It is precisely the info they willingly disclosed, that has been used to formulate this case.

 

So, sure, if you went into this with the thesis that "BUR will continue to grow AUM at 50% annually while generating 80% IRRs and since they have had very few 0's and write downs in the past they will never in the future"... well hopefully no one did that.

 

If you looked at thew broader numbers and what can be expected sector wise, and said "OK they grow AUM x% per, with average or slightly better industry expected returns, and will lose cases here and there"...it still isn't hard to get something compelling...

 

To boot, again, knowing how MW operates, the motive isn't hard to see and it isn't a long term play. They frame things to scare people, and probably are already out of a significant portion, if not all of their "investment". Kudos to them. Great play. I thought it intriguing, based on their prior work, how soft they seemed in their verbiage. Everything was "potentially" and "possibly" and half assed claims. They never say the word fraud once when all they are known for is screaming fraud.

[thepupil]

anyone able to trade the bonds? if so, through whom?

 

Bloomberg shows retail notes in $62-$80.

 

Think those could be the more assymetric in that the bar for those being worth par is lower than the business being worth book value or whatever.

 

[Gregmal]

Muddy Waters rates American Tower Corporation (NYSE: AMT) shares a Strong Sell. In this latest report Muddy Waters highlights how:

We rate American Tower Corp. (NYSE: AMT) a Strong Sell and value it at $44.57 per share, representing downside of 40%. AMT has serious challenges domestically and internationally that have not been factored into the stock price. It has engaged in a value destroying investment binge overseas, and we have identified a significant material misstatement in the Company’s accounts that could amount to fraud.

There is an approximately US$250 million discrepancy between what AMT claims to have paid for the acquisition of towers in Brazil, and the actual selling price. AMT claimed to have paid US$585.4 million for the towers, but the real price was close to US$300 million. If AMT is aware of this discrepancy, it would amount to fraud. We have provided our research to the SEC.

CEO James Taiclet’s consistent sales of approximately 90% of the shares he receives from option exercises suggests a lack of faith in the sustainability of AMT’s business – ironically, this is a view we share with him.

AMT’s international business is in part a de facto lending business that artificially inflates revenue, EBITDA, and AFFO. It is also part carry trade and part levered directional currency bet. This bet has resoundingly gone south this year.

AMT’s international IRRs are generally poor and far below cost of capital.

While wireless data usage will grow, much of this growth will circumvent cellular towers. Wi-Fi and more recently introduced technologies are making towers the data delivery option of last resort.

AMT’s REIT-focused investors will be disappointed by their inability to access AMT’s overseas cash flows.

Wall Street is setting investors up for a fall in AMT. We have reviewed five analyst models, and it is clear that they do not understand the company or know how to model it.

 

From mid 2013... These short guys love using accounting to derive narrative fitting themes. The simple fact is that many investors are not CPAs and dont understand or know how to interpret various financials. Its quite easy to play games, or say "this is categorized wrong, its misleading, potentially even fraud"...  Not that there aren't valid points in some cases, but the accounting dorks love to get wrapped up in sometimes telling stories that dont exist simply because they can kind of make the numbers say they do.

[matts]

Pretty spectacular how one person's opinion, based entirely off of already known public information can effect the valuation like this.

 

Are you suggesting you (and most longs) already knew about the specific cases referenced with aggressive accounting?

 

Greg, do you really think most investors holding Burford's stock were familiar with the intricate details of the Napo deal, including Invesco's involvement? How about all the twists and turns of Burford's arcane IRR and ROIC calculations? Were you, yourself, aware of all the info included in the report? Of course not.

 

Some but definitely not all. It depends how you frame it though.

 

For instance, Jaguar... One of the advantages this company is said to have, as a market leader is resources and pull. So lets put Jaguar into the context of what it is. This could have been an outcome that fell within the reasonably expected outcomes range. There will be investments that dont work and due to the binary nature, they are 0's. Burford, could've just taken that. Instead, they used their resources and leveraged a transaction to return something for shareholders. They marked it quite aggressively, and then wrote it down when it became clear it was pennies on the dollar. It could have just been called a 0 from day 1. They did a little better.

 

The problem isn't the steps they took in the Jaguar case but with how they disclosed the information. They kept increasing the disclosed ROI even as there was less and less chance of a recovery. And they were doing this for YEARS. Then suddenly in

H1 2019, they decided "hey, maybe we shouldn't be showing this at 196% roic". Of course, now taking this write-down is a much smaller impact due to the much larger portfolio years later.

 

 

[cameronfen]

Thank you for the really nice compliment Foreign Truffett!

 

As to the MW report, if this thread didn't exist and you learned all of that information for the first time it would be a big deal. Learning all the information in little pieces never feels as bad even if it has the exact same financial result.

 

I have a hard time understanding how anyone can look at the AM fee income when the AM was just found to be manipulating their investment results/asset marks! This is an example of already being exposed to bad information making you less likely to appreciate its importance. They just lied to their investors for years and years in a trust business. The AM business is dead. BUR would be lucky if all its investors did was walk away. BUR probably has to restate their financials.

 

For one thing, Napo transaction is not necessarily an outright fraud.  Even though they lost the case, obviously there was some contract with Napo where they were owed money which they got paid later.  Did they write the value too high, sure.  They were likely being aggressive?  Probably.  But writing up to fair value sometimes means you have to write down later.  That happens.  Were they manipulating marks? likely yes if not in this case others, but everyone who looked at your points about Peterson knew that.  Again, shady stuff but not illegal (I should note when I say manipulating marks I don't mean making valuations up, but selling to buyers opportunistically like before the quarter end...)

 

Again it's easy to say now right after the report came out that their AM is dead.  That's what they said about Och-Ziff, and now flows have stabilized.  The point is in two years no one will care.  Will they survive 2 years, likely yes.  You can argue the accusations against OZM were even more severe.  OZM may have had a better reputation than BUR, but again BUR will have better-performing assets and before this was the go-to place for litigation finance. 

[Gregmal]

Pretty spectacular how one person's opinion, based entirely off of already known public information can effect the valuation like this.

 

Are you suggesting you (and most longs) already knew about the specific cases referenced with aggressive accounting?

 

Greg, do you really think most investors holding Burford's stock were familiar with the intricate details of the Napo deal, including Invesco's involvement? How about all the twists and turns of Burford's arcane IRR and ROIC calculations? Were you, yourself, aware of all the info included in the report? Of course not.

 

Some but definitely not all. It depends how you frame it though.

 

For instance, Jaguar... One of the advantages this company is said to have, as a market leader is resources and pull. So lets put Jaguar into the context of what it is. This could have been an outcome that fell within the reasonably expected outcomes range. There will be investments that dont work and due to the binary nature, they are 0's. Burford, could've just taken that. Instead, they used their resources and leveraged a transaction to return something for shareholders. They marked it quite aggressively, and then wrote it down when it became clear it was pennies on the dollar. It could have just been called a 0 from day 1. They did a little better.

 

The problem isn't the steps they took in the Jaguar case but with how they disclosed the information. They kept increasing the disclosed ROI even as there was less and less chance of a recovery. And they were doing this for YEARS. Then suddenly in

H1 2019, they decided "hey, maybe we shouldn't be showing this at 196% roic". Of course, now taking this write-down is a much smaller impact due to the much larger portfolio years later.

 

OK, fair enough? Question though... were these details "unearthed" by MW and then after being called out, subsequently disclosed and written down, or disclosed willingly by Burford?

[Normax59]

Pretty spectacular how one person's opinion, based entirely off of already known public information can effect the valuation like this.

 

Are you suggesting you (and most longs) already knew about the specific cases referenced with aggressive accounting?

 

Greg, do you really think most investors holding Burford's stock were familiar with the intricate details of the Napo deal, including Invesco's involvement? How about all the twists and turns of Burford's arcane IRR and ROIC calculations? Were you, yourself, aware of all the info included in the report? Of course not.

 

Some but definitely not all. It depends how you frame it though.

 

For instance, Jaguar... One of the advantages this company is said to have, as a market leader is resources and pull. So lets put Jaguar into the context of what it is. This could have been an outcome that fell within the reasonably expected outcomes range. There will be investments that dont work and due to the binary nature, they are 0's. Burford, could've just taken that. Instead, they used their resources and leveraged a transaction to return something for shareholders. They marked it quite aggressively, and then wrote it down when it became clear it was pennies on the dollar. It could have just been called a 0 from day 1. They did a little better.

 

The problem isn't the steps they took in the Jaguar case but with how they disclosed the information. They kept increasing the disclosed ROI even as there was less and less chance of a recovery. And they were doing this for YEARS. Then suddenly in

H1 2019, they decided "hey, maybe we shouldn't be showing this at 196% roic". Of course, now taking this write-down is a much smaller impact due to the much larger portfolio years later.

 

OK, fair enough? Question though... were these details "unearthed" by MW and then after being called out, subsequently disclosed and written down, or disclosed willingly by Burford?

 

They were unearthed, being opaque is routine for this company. It took me 3 days to get a straight answer to if they use reverse entries for net realized gains. The only reason I even asked was because they randomly mentioned KKR and BX in the 1H19.