BUR.L - Burford Capital

[matts]

Did anyone listen to the conference call?  I may listen to it later but curious what happened?

 

For the most part they are repeating what is in their written rebuttal. They are taking a lot of questions, more than they really needed to. Overall, the call was confidence building for me (I'm long).

 

They still don't want to uplist to the LSE, but they are looking at dual listing to NASDAQ. No indication they will replace the wife.

 

The CIO sounds very confident, straight up said he had oversight of every single investment. As Gregmal mentioned, CEO and CIO bought $4 million in stock this morning.

 

I agree, the CFO is the least confidence-inspiring member of the team.

 

 

[Gregmal]

Did anyone listen to the conference call?  I may listen to it later but curious what happened?

 

For the most part they are repeating what is in their written rebuttal. They are taking a lot of questions, more than they really needed to. Overall, the call was confidence building for me (I'm long).

 

They still don't want to uplist to the LSE, but they are looking at dual listing to NASDAQ. No indication they will replace the wife.

 

The CIO sounds very confident, straight up said he had oversight of every single investment. As Gregmal mentioned, CEO and CIO bought $4 million in stock this morning.

 

LOL yea. Holy shit already just end the call its getting counter productive.

 

Analyst: "are there any other Petersens in there?"

[SnarkyPuppy]

The $4mm insider purchases are a joke - intellectually dishonest to suggest otherwise.  CFO sounds nervous and amateurish - but this is obviously a high pressure moment and they've decided to put themselves out to the public as quickly as possible. 

[peterHK]

I collected quotes from the first three pages of this thread that describe litigation finance as having a binary nature. I believe all these examples are from posters who were long Burford. I think categorizing litigation finance as binary is a gross oversimplification. The truth is that a more thorough mental model would describe the outcomes as a binomial tree with MANY nodes on it. By the time it come to estimating final probabilities, especially if you are calculating IRR (which is also dependent on time to reach each outcome on the tree), the outcome should be a probability distribution even at the level of a single case, much less the IRR of a portfolio of cases.

 

Using the term binary could be a sign that an analyst is using an effective simplification. It could be the analyst is actually thinking of a bimodal distribution, but calling it a binary outcome. I also think it could be a sign that an analyst is much closer to being the patsy at the table than they realize.

 

This linguistic point might be of little value, but it might also be a signal as to level of sophistication of analysis within an area of investment.

 

I think this also applies to the analysis of other industries such as developmental stage biotech and pharma.

 

 

Over time, I think this evolves into a PE style industry, and Burford is going to be the Blackstone/BAM of it. Returns will fall, but they need to still be high because of the binary nature of the underlying litigation, so my guess is that they settle out in the 15% IRR range. Again, PE firms have tons of competition, but regularly earn mid teens returns, so there's no reason that competition here has to erode returns immediately.

 

 

The problem for smaller operators is precisely that because the outcome of litigation is binary, they are at risk of a string of negative outcomes. The portfolio approach has lower returns, but is far more sustainable and carries far lower risk of permanent capital loss. This is why it's like BAM/BX: only the big guys with sufficient capital can have their portfolio diversified enough through portfolios as well as different strategies that returns across the book are diversified, steady, but still high. I'd rather have a sustainable stream of 30% than a 70% and then a -30% and then a 70% and -30% etc.

 

 

Litigation is binary. YOu either win, or you lose 100%. So that is why returns are high IF you have skill in underwriting. Burford already has scale and diversification, they do not need to achieve it quicker than other.

 

Burfords argument is that the nature of the business makes switching costs high because the diligence process is so intensive (with sensitive subject matter) the cost to "shop" the deal around is high. Burford's higher levels of diversification give them lower cost of capital (again w/ binary outcomes diversification is even more important than in other asset classes) and they become the "go to" for cases both large and small, picking the cream of the crop and passing the rest on to other players

 

The diversification point re 20 companies is not relevant to the outcomes in binary litigation finance.

 

 

As for risk, lets say you have a random 50/50 flip of heads and tails. Heads you win 200%, tails you lose 100%. Yes, your expected value is positive, but there is still a non-zero chance that you lose absolutely everything because of the binary outcome. 2 points to this. First, a firm with a greater number of cases, more capital, and therefore more coin flips, is going to have a lower level of risk. So diversifying beyond your 20th asset DOES matter.

 

Second, in order for the expected value to make sense in the above, you have to have 101% win, 100% losses and over time with enough coin flips you can make money. Now, let's say you were very skilled in evaluating opportunities so you could tilt the odds instead of 50/50 to 60/40. Expected returns there would be 20%, up from 0.5% with 50/50 odds. Thus, even very tiny shifts in the ability to judge outcomes skews expected returns massively because of the binary and large win/loss nature of these sorts of investments. Skill here matters exponentially more than in other alternative investment classes.

 

 

The problem for smaller operators is precisely that because the outcome of litigation is binary, they are at risk of a string of negative outcomes. The portfolio approach has lower returns, but is far more sustainable and carries far lower risk of permanent capital loss. This is why it's like BAM/BX: only the big guys with sufficient capital can have their portfolio diversified enough through portfolios as well as different strategies that returns across the book are diversified, steady, but still high. I'd rather have a sustainable stream of 30% than a 70% and then a -30% and then a 70% and -30% etc.

 

You are correct it's a tree, however the outcomes are, at each stage, binary: you either win or lose. Yes, there are nuances like what costs it takes to advance beyond a loss at each stage, and the expected value of the payout at each node, but this all reduces to a win or a loss in the final node, in which case the payoff is $0, or something.

[Pondside47]

The $4mm insider purchases are a joke - intellectually dishonest to suggest otherwise.  CFO sounds nervous and amateurish - but this is obviously a high pressure moment and they've decided to put themselves out to the public as quickly as possible.

 

It too early to conclude 4mm is a joke. I don’t know many people who has 2mm cash laying around to buy stock within the span of 2 days. It remains to be seen how much more they will buy

[cameronfen]

Thanks for the takes on the conference call both long biased and short biased views. 

 

 

The $4mm insider purchases are a joke - intellectually dishonest to suggest otherwise.  CFO sounds nervous and amateurish - but this is obviously a high pressure moment and they've decided to put themselves out to the public as quickly as possible.

 

Why would you say the insider purchases are a joke?  I know they don't release the salary for the CEO, but UK executive compesation is much lower than in the US and based on overhead expenses I think it would be hard to guess that the CEO salary is more than 10 million pounds so it clearly is a sizable purchase. 

[LaGrandeBelleza]

The $4mm insider purchases are a joke - intellectually dishonest to suggest otherwise.  CFO sounds nervous and amateurish - but this is obviously a high pressure moment and they've decided to put themselves out to the public as quickly as possible.

 

It too early to conclude 4mm is a joke. I don’t know many people who has 2mm cash laying around to buy stock within the span of 2 days. It remains to be seen how much more they will buy

 

They sold 140MM pounds or so about >1 year ago. Put that into context this buys are peanuts. If they wanted to come and reassess confidence of the market they should have made larger purchases, specially given the fact they are aware of the supposedly huge discount to their book right now.

 

On the other hand the more 'bullish' read would be that they've simply held back waiting to come with further purchases after MW's reply on the CC.

[Gregmal]

I kind of read it differently and feel as though they've backed themselves into a corner with the repurchases. What price did the CEO/CIO buys occur? What is the market price. Do they authorize a share buyback? If no, then that raises a lot of questions.

[cameronfen]

The $4mm insider purchases are a joke - intellectually dishonest to suggest otherwise.  CFO sounds nervous and amateurish - but this is obviously a high pressure moment and they've decided to put themselves out to the public as quickly as possible.

 

It too early to conclude 4mm is a joke. I don’t know many people who has 2mm cash laying around to buy stock within the span of 2 days. It remains to be seen how much more they will buy

 

They sold 140MM pounds or so about >1 year ago. Put that into context this buys are peanuts. If they wanted to come and reassess confidence of the market they should have made larger purchases, specially given the fact they are aware of the supposedly huge discount to their book right now.

 

On the other hand the more 'bullish' read would be that they've simply held back waiting to come with further purchases after MW's reply on the CC.

 

Ok thanks! 

[Read the Footnotes]

Thank you for the response peterHK.

 

I don't want to distract from discussion of the more important issues with Burford which clearly revolve around accounting and disclosure, but I am curious about your mental process.

 

When you imagine the "something" outcome in your head, what are you imagining? Is that a single point estimate? Home many terminal nodes produce those outcomes of "something" or "$0"?

 

 

You are correct it's a tree, however the outcomes are, at each stage, binary: you either win or lose. Yes, there are nuances like what costs it takes to advance beyond a loss at each stage, and the expected value of the payout at each node, but this all reduces to a win or a loss in the final node, in which case the payoff is $0, or something.

[LaGrandeBelleza]

I kind of read it differently and feel as though they've backed themselves into a corner with the repurchases. What price did the CEO/CIO buys occur? What is the market price. Do they authorize a share buyback? If no, then that raises a lot of questions.

 

663.77p

 

Up to 10% share repurchase is already authorised - prior to all this events afaik - by the board however they haven't made it clear in the call if they'll proceed with it or not.

[Gregmal]

I kind of read it differently and feel as though they've backed themselves into a corner with the repurchases. What price did the CEO/CIO buys occur? What is the market price. Do they authorize a share buyback? If no, then that raises a lot of questions.

 

663.77p

 

Up to 10% share repurchase is already authorised - prior to all this events afaik - by the board however they haven't made it clear in the call if they'll proceed with it or not.

 

This was prior though I think. So lets say you had the insider purchases occur today(we did), but the board chooses not to go through with any repurchases. They listed the reason why it might not make sense on the call...which mirror what BX has said before too, but after recent events I dont buy it as a valid excuse. But lets say they dont. Pretty damning in terms of triangulating a rough idea of their idea of fair value IMO.

[Peregrine]

FYI, Muddy Waters had been covering its short before the report was even released, according to regulatory disclosures.

 

I imagine that they covered even more during the panic selling yesterday.

 

It's a complete joke how the SEC and other securities regulators don't investigate what appears to be pretty blatant market manipulation. Also a joke how much credence so many market participants give to these guys. Outside of a handful of highly-publicized wins, Muddy Waters' performance has really been crap.

[5xEBITDA]

FYI, Muddy Waters had been covering its short before the report was even released, according to regulatory disclosures.

 

I imagine that they covered even more during the panic selling yesterday.

 

It's a complete joke how the SEC and other securities regulators don't investigate what appears to be pretty blatant market manipulation. Also a joke how much credence so many market participants give to these guys. Outside of a handful of highly-publicized wins, Muddy Waters' performance has really been crap.

 

How is this any different than guys who are long, pitch an idea at the Sohn conference, and then sell on the pop?

[Gregmal]

FYI, Muddy Waters had been covering its short before the report was even released, according to regulatory disclosures.

 

I imagine that they covered even more during the panic selling yesterday.

 

It's a complete joke how the SEC and other securities regulators don't investigate what appears to be pretty blatant market manipulation. Also a joke how much credence so many market participants give to these guys. Outside of a handful of highly-publicized wins, Muddy Waters' performance has really been crap.

 

How is this any different than guys who are long, pitch an idea at the Sohn conference, and then sell on the pop?

 

He's not. They're all ethically challenged scumbags. Its one thing if you publicly support/bash/pitch something, give your logic, and then your target, and generally try to follow that. It s another when you deliberately present things in ways to take advantage of others and then sneakily orchestrate your scheme.

 

Right so in this spot, you short something, leak who it is about, and then BEFORE EVEN PITCHING IT, COVER INTO YOUR OWN LEAKED RUMOR? And then the next day, release your info and do publicity tour rounds on tv boasting about how right you are and its the next Enron when you had spent the past couple days actually BUYING THE STOCK?

[writser]

Maybe Muddy Waters is too promotional, but he puts his money on the line, discloses his position, his identity, shares his research and joins the conference call afterwards. Could be worse. At the very least his report was an interesting read and it imho adds more value to the Burford discussion than 99% of all other content out there. Is he deliberately misleading investors? Could be, but I'm not sure and I couldn't care less anyway. He isn't managing their money and if he is spreading blatant lies Burford or regulators can sue him to death. DYODD, take advantage of the opportunity (if any) and if you feel the need to blame someone blame the lemmings who follow him. If he discloses he is short and speculators drive down the price, well, good for him. I'm totally fine with him covering his position or even going long if idiots drive down the price 75%.

 

I'd rather have the SEC focus on something else rather than vilifying shortsellers.

[Foreign Tuffett]

FYI, Muddy Waters had been covering its short before the report was even released, according to regulatory disclosures.

I imagine that they covered even more during the panic selling yesterday.

 

It's a complete joke how the SEC and other securities regulators don't investigate what appears to be pretty blatant market manipulation. Also a joke how much credence so many market participants give to these guys. Outside of a handful of highly-publicized wins, Muddy Waters' performance has really been crap.

 

Link?

[Gregmal]

FYI, Muddy Waters had been covering its short before the report was even released, according to regulatory disclosures.

I imagine that they covered even more during the panic selling yesterday.

 

It's a complete joke how the SEC and other securities regulators don't investigate what appears to be pretty blatant market manipulation. Also a joke how much credence so many market participants give to these guys. Outside of a handful of highly-publicized wins, Muddy Waters' performance has really been crap.

 

Link?

 

I'll try to find it later but the FCA requires net short positions to be disclosed. One of my paper pushers told me the same thing this afternoon and I was like "I could have told you Block was covering(and probably even mostly out already) without ever having dedicated a minute to researching it. After a while you get familiar with how these guys operate. Its why it was easy to deduce he was short the day before as well". Although I was surprised to learn that apparently the MW short position wasn't even that big.

 

To writsers point, thanks Carsten for speeding up my position build and allowing me an entry point I never thought we'd see.

[cameronfen]

FYI, Muddy Waters had been covering its short before the report was even released, according to regulatory disclosures.

I imagine that they covered even more during the panic selling yesterday.

 

It's a complete joke how the SEC and other securities regulators don't investigate what appears to be pretty blatant market manipulation. Also a joke how much credence so many market participants give to these guys. Outside of a handful of highly-publicized wins, Muddy Waters' performance has really been crap.

 

Link?

 

Here is one thing:  https://breakoutpoint.com/tweets/BreakoutPoint-HWDQNTVZ5YI6TORQ6I6JCFDWXAAA/

[cameronfen]

FYI, Muddy Waters had been covering its short before the report was even released, according to regulatory disclosures.

 

I imagine that they covered even more during the panic selling yesterday.

 

It's a complete joke how the SEC and other securities regulators don't investigate what appears to be pretty blatant market manipulation. Also a joke how much credence so many market participants give to these guys. Outside of a handful of highly-publicized wins, Muddy Waters' performance has really been crap.

 

How is this any different than guys who are long, pitch an idea at the Sohn conference, and then sell on the pop?

 

I think shorts should have a higher bar for accurate reporting.  Namely you could not only screw over market participents which is whatever as they should have done their DD, but also employees, customers, and suppliers of the firm unjustifiably.  Not saying MW attack was without merit, but if it was, the economic consequences would be much greater than someone pumping some long. 

[Peregrine]

FYI, Muddy Waters had been covering its short before the report was even released, according to regulatory disclosures.

 

I imagine that they covered even more during the panic selling yesterday.

 

It's a complete joke how the SEC and other securities regulators don't investigate what appears to be pretty blatant market manipulation. Also a joke how much credence so many market participants give to these guys. Outside of a handful of highly-publicized wins, Muddy Waters' performance has really been crap.

 

How is this any different than guys who are long, pitch an idea at the Sohn conference, and then sell on the pop?

 

There's a difference between expressing an opinion about a company and accusing one of fraud, unethical and even criminal behaviour with little more than conspiracy theories and deliberate misinterpretation of facts. Not to mention that fear and panic generates far greater movements in the market than does optimism.

 

I just find it wholly ironic that a lot of these guys accuse their targets of unethical and shady behaviour when they engage in said behaviour in broad daylight.

[Gregmal]

Yea, so check it out. This guy takes a short position of .71% for his account on 5 Aug. He leaks rumors and starts covering for likely a 10-15% gain on 6 Aug, covering ~20% of his position and I'd gander when shit comes out, he's out of almost all of his position within 2-3 days of the "investment". LOL

 

In his defense, I did consider his report more of an "enlightening" attempt than an investment thesis. There really wasn't a lot of "this is going to happen", but moreso, "this is what they do". Sure he's still going around on TV and tweeting, but at this point its just about advertising for his firm and building an audience so he can continue generating these massive moves whenever he decides he needs some short term returns.

 

Either way, people would be wise to study these mechanisms and learn how these kind of folks operate so they can play the game as well.

[cameronfen]

FYI, Muddy Waters had been covering its short before the report was even released, according to regulatory disclosures.

 

I imagine that they covered even more during the panic selling yesterday.

 

It's a complete joke how the SEC and other securities regulators don't investigate what appears to be pretty blatant market manipulation. Also a joke how much credence so many market participants give to these guys. Outside of a handful of highly-publicized wins, Muddy Waters' performance has really been crap.

 

How is this any different than guys who are long, pitch an idea at the Sohn conference, and then sell on the pop?

 

There's a difference between expressing an opinion about a company and accusing one of fraud, unethical and even criminal behaviour with little more than conspiracy theories and deliberate misinterpretation of facts. Not to mention that fear and panic generates far greater movements in the market than does optimism.

 

I just find it wholly ironic that a lot of these guys accuse their targets of unethical and shady behaviour when they engage in said behaviour in broad daylight.

 

I think I may try looking at big announcements of these large short companies and investigating and thinking of buying after their short is announced.  With Muddy Waters for instance the big red flag was the fact that they included 2018 and 20191H returns in the IRR.  Anyone (including MW) who spends a day looking at the stock knew that most of those investments were only partially complete and the way 2018 and 2019 IRRs were presented was dishonest.  The same thing happened with Citron and Jumia.  There are lots of reasons to be short JMIA, but again some of the facts contained in their report were blatant misrepresentations. 

 

If you really think a company is problematic, you put out a short piece that acknowledges all the facts and wait for the long term to play out.  This is how MW and Citron and others built their reputations, but now they are simply leaching off their glow of their former good calls, building reports that look damning but are really nothingburgers, and capturing a quick buck when the stock overreacts after announcement. 

[Spekulatius]

I think Muddy Waters Chose their target well. An opaque company held by weak hands (Woodford) that has a lot of people sucked in that don’t understand the Business. That’s why there was no floor underneath the stock price.

 

The profits to trade these crap stocks can be eye popping - a 2x from a 400p low in one day isn’t bad. Heck even SHDL was a 10 Bagger after  bankruptcy as it went from 25c to ~$2.5 for a brief spike.

[cameronfen]

I think Muddy Waters Chose their target well. An opaque company held by weak hands (Woodford) that has a lot of people sucked in that don’t understand the Business. That’s why there was no floor underneath the stock price.

 

The profits to trade these crap stocks can be eye popping - a 2x from a 400p low in one day isn’t bad. Heck even SHDL was a 10 Bagger after  bankruptcy as it went from 25c to ~$2.5 for a brief spike.

 

Yeah thats the other thing I wanted to add.  I think they target their shorts well with significant technical factors on their side.  With JMIA it was an IPO with a large owner looking to sell post lockup.  With BUR it was Woodford.  I don't think its over yet as you mentioned although not sure if I'd call it a crap stock.  They have little risk of bankrupcy and they can compound at RoE of 20% conservatively the next couple years.