BUR.L - Burford Capital

[Normax59]

It would be great to compare the purchases to their remuneration this year. Those two are being paid millions per year already, they had a 100 person team going into the 2018 annual report with staff costs of almost $50MM. Chop off $10MM for traveling expense etc. I know for a fact their average employee is making no where near $400k a year.

[writser]

The good thing about being listed on AIM in the UK is that you do not have to disclose that (even though 78% of the 50 largest AIM-listed companies voluntarily do so).

[Normax59]

The good thing about being listed on AIM in the UK is that you do not have to disclose that (even though 78% of the 50 largest AIM-listed companies voluntarily do so).

 

 

They said in the latest RNS that Bogart would be joining the board "in due course", I wouldn't be shocked if he makes anywhere between $6-9MM. The Investment Advisor in 2011, the year before being acquired, was to receive management fees for the year of $6MM from the fund with an 18 person team, this was with $300MM AUM and only half of the capital deployed. Given the opportunity cost I can only assume that shareholders are paying Molot and Bogart an arm and a leg.

 

Then again, knowing the timing of their Teinver sale, I'm not sure those two understand opportunity cost too well.

[Gregmal]

Has anyone kept up with the latest MW reports? The second one on "behavioral analysis" was quite possibly one of the most hilarious and farfetched pieces of "research" Ive ever read.

 

in response to the insolvent claim that even bears have acknowledged was inconceivable, MW report states "Management exhibits aggression, persuasion and evasion behavior around this issue, suggesting liquidity is a bigger concern than they want to admit." Yup! They should have been ELATED!

 

These sort of magic dot connecting exercises are prevalent throughout these follow up "reports". The big, giant, smoking gun, again, in the final report.... is the already touched on $7M(yes 7, not 70 or 700) Napo case.....

 

Even the touted headlines of MW is still short... seem just as preposterous as much of the content...dude covered the day before releasing his report, and throughout the entire day of his press parade...and was out of almost the entirety of his position within days of initiating it....So maybe there's multiple different liars, deceivers, and dishonest parties involved....

 

Most likely, he has a token short position left just so he can go parading around without being guilty of outright lying...just massively misrepresenting ...what an assclown. But as far as the disclosures go, there is no evidence he is still short.

 

EDIT: Another good example... paraphrasing "they used aggressive words to defend the AIM listing and said they were exploring a US listing which basically means the odds of this are not good and they are being misleading".... LOL like didn't the company state they reached out to investors, and that they'd be starting the process to list in either the US or London big board because investors said the AIM listing was unacceptable?

[Guest Schwab711]

It's not necessarily a high probability but there are ways to have liquidity concerns. At a $1b valuation, they have up to $110m more they can sell in Petersen. If Petersen fails late this year or next year, BUR could have a real problem on their hand.

 

Ex-Petersen, 1H20 earnings appear likely to be much lower than the last few years (unless there's a future Teinver or Petersen everyone missed). The recent investments have been in shareholder appraisal rights. These can have high IRRs but ROIC is around 1.1x - 1.2x, at best. Ultimately, ROIC pays the bills. If a shareholder appraisal case takes longer than expected and results in a loss + Petersen loses, BUR will all of a sudden have much lower NI and ROE, debt:equity closer to 1, and debt ~2 years from maturity.

 

Again, I have no idea what the probability of the above is but there is a non-trivial chance BUR isn't worth being involved with. Add to that, the point of Napo is that if the BUR is willing to mislead about one case, it's not a huge jump to mislead on more. One issue where there's not enough information to show conclusively either way is that BUR's cash flows are hard to square. There is reason to believe BUR engages in window dressing.

 

I get the whole "short attack" thesis but I think investing in BUR without studying it is not a great idea. I assume MW is like everyone else. They really can't allege much more until there's more info, but that doesn't mean there isn't a chance more is out there.

[Gregmal]

To be fair Schwab, I think several of us have indicated you make a much more compelling case to be short or skeptical than many of the others, including MW, who at this point is literally just after publicity.

 

The "dur.....AIM listing" stuff is valueless. I have yet to encounter anyone involved in this who wasn't aware that BUR traded on the AIM. It is what it is and its up to the investor to decide if its something they are comfortable with. Further, this issue is in the process of being resolved. Same goes for the accounting.

 

The "OMG compensation" is another one. I mean sure, company comp, especially with structures like this, can be high/excessive. Are people unaware of this or to assume otherwise? Further, do you have any idea what, lets say, a senior equity partner at LW makes annually? Hint, 1-2M GBP per month is hardly unreasonable. So its either purposely misleading or unintentionally uninformed to imply top executive salaries being in that same range are so farfetched....Frankly, Id find it a far bigger red flag if total comp for the top people, was only, lets say 2-3 months worth of comp at other jobs available to top people in the field.

 

Which is exactly this issue with MW now. Its fine if they want to trade/front run their own noise and commotion. Make some money..great, that's the name of the game. But starting with their "BUR's response was exactly how we'd expect a shady company to respond" quip(like, yea, real substantive... its obvious you already covered your short)... now going onto to these preposterous "reports", "analyzing behavior"? Its kind of laughable, and its hard to see how this doesn't impugn their credibility.

[Guest Schwab711]

To be fair Schwab, I think several of us have indicated you make a much more compelling case to be short or skeptical than many of the others, including MW, who at this point is literally just after publicity.

 

The "dur.....AIM listing" stuff is valueless. I have yet to encounter anyone involved in this who wasn't aware that BUR traded on the AIM. It is what it is and its up to the investor to decide if its something they are comfortable with. Further, this issue is in the process of being resolved. Same goes for the accounting.

 

The "OMG compensation" is another one. I mean sure, company comp, especially with structures like this, can be high/excessive. Are people unaware of this or to assume otherwise? Further, do you have any idea what, lets say, a senior equity partner at LW makes annually? Hint, 1-2M GBP per month is hardly unreasonable. So its either purposely misleading or unintentionally uninformed to imply top executive salaries being in that same range are so farfetched....Frankly, Id find it a far bigger red flag if total comp for the top people, was only, lets say 2-3 months worth of comp at other jobs available to top people in the field.

 

Which is exactly this issue with MW now. Its fine if they want to trade/front run their own noise and commotion. Make some money..great, that's the name of the game. But starting with their "BUR's response was exactly how we'd expect a shady company to respond" quip(like, yea, real substantive... its obvious you already covered your short)... now going onto to these preposterous "reports", "analyzing behavior"? Its kind of laughable, and its hard to see how this doesn't impugn their credibility.

 

Gotcha. I don't understand the current short focus either. I don't see the point of betting against the stock at this price until we see arguments for Petersen. Even then, I'd obviously want to know what lawyers think and not what I hope. I agree the current focus of shorts is pretty dumb since compensation is obviously variable and if it's too high, that suggests there's further liquidity cushion. If you change exchanges, it won't change anything for awhile at best (from a short POV) but it will kill the short narrative. That's where I misunderstood your focus, I agree the qualitative red flags are not the issue at ~1.5x BV. BV is a fair price, given current info, and I could see an argument that 1.5x factors AM business + industry growth/ect. If Petersen wins, BUR is cheap today, no matter what additional problems exist.

[Normax59]

To be fair Schwab, I think several of us have indicated you make a much more compelling case to be short or skeptical than many of the others, including MW, who at this point is literally just after publicity.

 

The "dur.....AIM listing" stuff is valueless. I have yet to encounter anyone involved in this who wasn't aware that BUR traded on the AIM. It is what it is and its up to the investor to decide if its something they are comfortable with. Further, this issue is in the process of being resolved. Same goes for the accounting.

 

The "OMG compensation" is another one. I mean sure, company comp, especially with structures like this, can be high/excessive. Are people unaware of this or to assume otherwise? Further, do you have any idea what, lets say, a senior equity partner at LW makes annually? Hint, 1-2M GBP per month is hardly unreasonable. So its either purposely misleading or unintentionally uninformed to imply top executive salaries being in that same range are so farfetched....Frankly, Id find it a far bigger red flag if total comp for the top people, was only, lets say 2-3 months worth of comp at other jobs available to top people in the field.

 

Which is exactly this issue with MW now. Its fine if they want to trade/front run their own noise and commotion. Make some money..great, that's the name of the game. But starting with their "BUR's response was exactly how we'd expect a shady company to respond" quip(like, yea, real substantive... its obvious you already covered your short)... now going onto to these preposterous "reports", "analyzing behavior"? Its kind of laughable, and its hard to see how this doesn't impugn their credibility.

 

To clarify my comp. remark wasn't about whether they are being paid excessively or not, they could have obviously stayed as the IA to the company and racked in fees, if someone is using that as a basis for shorting the company then good luck to them. I was more gearing my comments towards the stock purchases following the report relative to the compensation they are going to receive this year, it basically nets out.

 

 

[latticework]

Have not read this yet, but Artem Fokin at Caro-Kann Capital just published this piece on his website and sumzero.  He wrote up Burford on Sumzero back in December. 

 

http://caro-kann-capital.com/pdf/2019_09_09_Burford_Muddy_Waters_Dreams_of_Black_Cat_That_Just_Is_Not_There_by_Caro-Kann_Capital.pdf

[writser]

This topic has been suspiciously silent. Shares are making new lows. From the latest press release:

 

[..] with the expectation that Burford's registration statement would be filed with the SEC in April 2020.  It is not viable to file a registration statement without including Burford's 2019 results.

 

In response to shareholder inquiries, Burford confirms that it will provide in its 2019 annual report information about management compensation (including individual compensation disclosure for Messrs  Bogart and Molot) consistent with the disclosure obligations to which it will be subject under its potential US listing even though those obligations will not yet have taken effect.

 

Burford is probably still way out of my comfort zone but now seems as good a time as any to buy some shares around 1.2x book, if you are interested in this name. The hype seems to be over. Any new thoughts?

[Gregmal]

The hype picked up again moderately in mid December with a couple television appearances and conferences. At this point, at least with those whom Ive discussed the name with, it is wait and see. The changes that were said to be adopted are all great on paper, specifically the US listing. Burford is also a company that only reports twice a year, with much of the shenanigans coming almost immediately after their 6 months results came out. Next reporting date is in March, so still very much away from any(expected) news of material events.

 

The biggest variable here is still Petersen. I was discussing this with a few folks privately way back when all the circus was going on, and its quite interesting how much effort Muddy Waters put into fabricating and weaving partial information or deliberately misinterpreted items into a story about the crime of the century when the biggest and most obvious question relating to valuation is Petersen. IMO Petersen is hardly a sure thing, and even if the outcome is fairly certain, the financial benefit is far from. You have the markings of that investment shrouded in secrecy, and a mountain of political uncertainty. Until it is monetized in one way or another, its hard to value it as a significant cog in the Burford equation. But yea, at 1.2x book, assuming the general business has not deteriorated and still is capable of attracting fee earning capital, you're probably in pretty decent shape here.

 

It is interesting to watch the divergence amongst the litigation finance names. IMF, LIT, and BUR now basically all trade on their own and irrespective of each other whereas previously there seemed to be a lot of correlation.

[Foreign Tuffett]

Looks to me like the stock is trading somewhat under book value, even if you strip out intangible assets and goodwill. How is everyone getting to 1.2x ?

[Gregmal]

Looks to me like the stock is trading somewhat under book value, even if you strip out intangible assets and goodwill. How is everyone getting to 1.2x ?

 

I just kind of went with what writser wrote as its in the ballpark enough that I didn't care to split hairs. I dont necessarily think its the best method for evaluating Burford.

[writser]

Looks to me like the stock is trading somewhat under book value, even if you strip out intangible assets and goodwill. How is everyone getting to 1.2x ?

 

Either you forgot GBP/USD or my very simple approach of looking at the latest report and comparing that to the market cap misses something.

[Foreign Tuffett]

Looks to me like the stock is trading somewhat under book value, even if you strip out intangible assets and goodwill. How is everyone getting to 1.2x ?

 

Either you forgot GBP/USD or my very simple approach of looking at the latest report and comparing that to the market cap misses something.

 

No, my mistake; had a brain fart and forgot about the mismatch between their USD financials and UK traded stock.

[Foreign Tuffett]

RE: Petersen and Eton Park

 

Argentina paid Repsol the equivalent of ~$5 billion in 2/2014 for the expropriation of 51% of YPF from Repso in 2012. Repsol was originally seeking $10+ billion so it, in effect, settled for fifty cents on the dollar.

 

https://www.repsol.com/en/press-room/press-releases/2014/02/25/argentina-and-repsol-reach-compensation-agreement.cshtml

 

https://www.nytimes.com/2014/02/26/business/international/repsol-said-to-reach-settlement-with-argentina.html

 

YPF IPO'd on the NYSE in 1993. Per YPF's bylaws, before taking majority control of YPF, Argentina was required to initiate a tender offer to purchase Petersen's (~25% of YPF) and Eton Park's (~3% of YPF) shares, with the tender price determined by a formula explicitly spelled out in the bylaws. Surprise, surprise, Argentina didn't do the tender offer.

 

Per slide #21 ("Calculating damages in Petersen") of the presentation BUR released last Sept, BUR (based on its % interest in the two cases) could be awarded billions of dollars. I have attached a Spanish academic paper from 2012 that outlines the per YPF share calculations. Insofar as I can tell its conclusions about the tender price (pages 11 and 12) appear similar to BUR's own.

 

Note that all of the above is somewhat oversimplified, but captures the basics of the situation, which hasn't been explored in any detail whatsoever in the many pages of this thread.

 

 

 

[Guest Schwab711]

https://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/bur-l-burford-capital/msg376065/#msg376065

 

You can calculate Jeffries' $2.5b estimate through the documents you posted. There's a good academic case study on the situation as well that mirrors BUR's damages argument.

 

If Petersen loses (which in turn affects Eton Park), P/BV is probably ~1.8x. If BUR wins, ~0.8x. The issue is winning and collecting in a reasonable amount of time. The past two years' returns are not indicative of the future, though I'm not saying it's impossible for BUR to have good years again.

 

Finally, there's outstanding cash flow issues Normax59 has pointed out that we don't have enough data to resolve yet. This may confirm MW allegations or ultimately be the effects of BUR's business model change to pursue dissenter's rights cases.

 

Tl;Dr: ~640 GBP is a good price relative to peers, but there are many issues to consider between future industry returns and BUR-specific accounting. I don't think BUR is a bad purchase at this price but there's too much risk for me at current valuation.

[Foreign Tuffett]

https://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/bur-l-burford-capital/msg376065/#msg376065

 

You can calculate Jeffries' $2.5b estimate through the documents you posted. There's a good academic case study on the situation as well that mirrors BUR's damages argument.

 

OK, I see three different Jefferies "Assumed Payoff" scenarios: $1.5 billion, $2.5 billion, and $5 billion. Am I understanding you correctly in that you are saying that the calculations in the document I attached line up with the $2.5 billion scenario?

 

Re: "good academic study" -- are you referring the one I posted, or something else? If the latter, can you link to it?

 

If Petersen loses (which in turn affects Eton Park), P/BV is probably ~1.8x. If BUR wins, ~0.8x. The issue is winning and collecting in a reasonable amount of time. The past two years' returns are not indicative of the future, though I'm not saying it's impossible for BUR to have good years again.

 

If Petersen outright loses the case then Eaton Park is probably a zero as well. I disagree that BUR (and friends) have to "win" though. Argentina could settle, just like it did with Repsol.

 

I agree that collecting from Argentina is difficult due to its perpetual fiscal and political difficulties, but Repsol and Elliot Management have done it successfully.

 

Finally, there's outstanding cash flow issues Normax59 has pointed out that we don't have enough data to resolve yet. This may confirm MW allegations or ultimately be the effects of BUR's business model change to pursue dissenter's rights cases.

 

Can you be more specific? The idea is that BUR's earnings are not converting to cash and thus, aren't really "earnings" ?

 

Tl;Dr: ~640 GBP is a good price relative to peers, but there are many issues to consider between future industry returns and BUR-specific accounting. I don't think BUR is a bad purchase at this price but there's too much risk for me at current valuation.

 

Fair enough

 

My comments in bold

[Guest Schwab711]

1.

https://media.iese.edu/research/pdfs/WP-1055-E.pdf

 

The $1.5b and $5.0b gross payout  screenshots were illustrative to allow folks to recreate the table. I think $2.5b gross payout is likely the figure investors used to underwrite the purchase of interests in the Petersen case.

 

2.

Settlement = win, definitely. I suspect a settlement is less likely given Argentina's approach to the case thus far, but I honestly have no idea how to handicap any of the outcome possibilities with any accuracy.

 

As to collections, not only was non-payment a consideration, but I think at one point I worried that Argentina would be able to pay in Pesos at their official exchange rate. I can't find the cases that led me to believe that was a possibility and I have no idea if this is even a realistic possibility. If I find the notes on whether I was ever able to confirm this or not I'll post it. I assume Argentina will have to pay in US dollars, but I at least remember this being a concern the last time I was researching BUR closely.

 

3.

I could be more specific with notes on my work computer but it's two-fold. First, that detailed reporting on realizations at the Group and consolidated level don't seem to make sense in 1H 2019. Second, transfers into Level 3 investments are odd. It's not clear exactly what is happening in prior years (which raises the question of quality of book value).

[Foreign Tuffett]

1.

https://media.iese.edu/research/pdfs/WP-1055-E.pdf

 

The $1.5b and $5.0b gross payout  screenshots were illustrative to allow folks to recreate the table. I think $2.5b gross payout is likely the figure investors used to underwrite the purchase of interests in the Petersen case.

 

Yeah, that is the same paper I have/was using. I attempted to attach it to my earlier post, but apparently failed to do so.

 

2.

Settlement = win, definitely. I suspect a settlement is less likely given Argentina's approach to the case thus far, but I honestly have no idea how to handicap any of the outcome possibilities with any accuracy.

 

Yeah, it is difficult to handicap the odds here. I do think though, that Petersen and Eton Park are strong cases. The core fact pattern is relatively simple: Argentina blatantly ignored YPF's bylaws, bylaws that seem to have been put in place in the lead up the to IPO specifically to ease investor concerns about Argentina....doing exactly what it eventually did. Basically Argentina went into full on IDAF-YOLO mode due to its IRL FOMO on the Vaca Muerta play

 

As to collections, not only was non-payment a consideration, but I think at one point I worried that Argentina would be able to pay in Pesos at their official exchange rate. I can't find the cases that led me to believe that was a possibility and I have no idea if this is even a realistic possibility. If I find the notes on whether I was ever able to confirm this or not I'll post it. I assume Argentina will have to pay in US dollars, but I at least remember this being a concern the last time I was researching BUR closely.

 

BUR's Sept presentation explicitly dismisses this possibility (slide 22): "The weakness in Argentina’s currency is also irrelevant – Petersen held US-dollar denominated ADRs traded on the New York Stock Exchange, and any judgment should be rendered in US dollars and enforceable in the US and in many other countries"

 

3.

I could be more specific with notes on my work computer but it's two-fold. First, that detailed reporting on realizations at the Group and consolidated level don't seem to make sense in 1H 2019. Second, transfers into Level 3 investments are odd. It's not clear exactly what is happening in prior years (which raises the question of quality of book value).

 

Good thoughts from you as usual....my comments in bold again

[Gregmal]

https://www.morningstar.co.uk/uk/news/AN_1580727959781068900/burford-capital-sees-record-annual-commitments-guides-for-profit-fall.aspx

 

A lot implied, but not a lot really said. Very Burford of them.

[LaGrandeBelleza]

1.

https://media.iese.edu/research/pdfs/WP-1055-E.pdf

 

The $1.5b and $5.0b gross payout  screenshots were illustrative to allow folks to recreate the table. I think $2.5b gross payout is likely the figure investors used to underwrite the purchase of interests in the Petersen case.

 

Yeah, that is the same paper I have/was using. I attempted to attach it to my earlier post, but apparently failed to do so.

 

2.

Settlement = win, definitely. I suspect a settlement is less likely given Argentina's approach to the case thus far, but I honestly have no idea how to handicap any of the outcome possibilities with any accuracy.

 

Yeah, it is difficult to handicap the odds here. I do think though, that Petersen and Eton Park are strong cases. The core fact pattern is relatively simple: Argentina blatantly ignored YPF's bylaws, bylaws that seem to have been put in place in the lead up the to IPO specifically to ease investor concerns about Argentina....doing exactly what it eventually did. Basically Argentina went into full on IDAF-YOLO mode due to its IRL FOMO on the Vaca Muerta play

 

As to collections, not only was non-payment a consideration, but I think at one point I worried that Argentina would be able to pay in Pesos at their official exchange rate. I can't find the cases that led me to believe that was a possibility and I have no idea if this is even a realistic possibility. If I find the notes on whether I was ever able to confirm this or not I'll post it. I assume Argentina will have to pay in US dollars, but I at least remember this being a concern the last time I was researching BUR closely.

 

BUR's Sept presentation explicitly dismisses this possibility (slide 22): "The weakness in Argentina’s currency is also irrelevant – Petersen held US-dollar denominated ADRs traded on the New York Stock Exchange, and any judgment should be rendered in US dollars and enforceable in the US and in many other countries"

 

3.

I could be more specific with notes on my work computer but it's two-fold. First, that detailed reporting on realizations at the Group and consolidated level don't seem to make sense in 1H 2019. Second, transfers into Level 3 investments are odd. It's not clear exactly what is happening in prior years (which raises the question of quality of book value).

 

Good thoughts from you as usual....my comments in bold again

 

Great insights from you and Schwab711 as usual, just revisiting this name after a while, it looks like it has been dead money since the MW report came out.

 

Wanted to verify BUR's Sept presentation (slide 22) affirmations, here's what I found:

 

§ 823 of the Restatement (Third) of Foreign Relations Law reveals the basic principle of the American (or really any international) justice system - if a party has been injured, the judgment aims at making the injured party whole again:

 

"... neither State nor federal courts in the United States have been consistent in their choice of dates for conversion into dollars of obligations stated in foreign currencies. In general, however, courts have endeavoured to select the rule that, in a given case, will prevent the loss due to fluctuation of exchange rates from being borne by the injured or non-breaching party. "

 

"If the court gives judgment in United States dollars, as is the general practice, the date used for conversion should depend on whether the currency of obligation has appreciated or depreciated relative to the dollar. In general, if the foreign currency has depreciated since the injury or breach, judgment should be given at the rate of exchange applicable on the date of injury or breach; if the foreign currency has appreciated since the injury or breach, judgment should be given at the rate of exchange applicable on the date of judgment or the date of payment."

 

Is the Caro-Cann Capital rebutal worth reading? It's so lengthy and they seem to be trapped on the name, I pretty much prefer when people goes straight to the point. Feeling like risk not worth it till this trades < 400GBX

[DeepValuePlay]

I think current share price is very attractive - it represent a 4 or 5 P/E multiple. The MW report scared everyone but had little merit to it in my opinion. 2H 2019 was very weak with virtually no revenues. The reason is not fraud or bad investments but just that very few investments had a resolution - management mentioned that there were no positive resolutions but also no negative ones... just very little activity - this is anti cyclical so could have a great 1H 2020 even during a Corona inflected recession. In fact management already stated January was great!

[Gregmal]

I think current share price is very attractive - it represent a 4 or 5 P/E multiple. The MW report scared everyone but had little merit to it in my opinion. 2H 2019 was very weak with virtually no revenues. The reason is not fraud or bad investments but just that very few investments had a resolution - management mentioned that there were no positive resolutions but also no negative ones... just very little activity - this is anti cyclical so could have a great 1H 2020 even during a Corona inflected recession. In fact management already stated January was great!

 

I tend to agree. I was looking at these this week. Im not doing anything more because theres easier fish to fry IMO from the perspective of my core portfolio investment. But the basket of BUR, LIT, and IMF look decent here(granted only one thats done well as an investment is IMF). Perhaps even if you want to stretch it, eventual benefactors as Ive heard some chatter amongst a few attorney friends that corona related liability lawsuits are laying in wait should things progress further. I dont know if any of these firms plan to take these up, but you can connect dots to see that this may be fertile grounds for picking off easy settlements.

[Edward]

I think current share price is very attractive - it represent a 4 or 5 P/E multiple. The MW report scared everyone but had little merit to it in my opinion. 2H 2019 was very weak with virtually no revenues. The reason is not fraud or bad investments but just that very few investments had a resolution - management mentioned that there were no positive resolutions but also no negative ones... just very little activity - this is anti cyclical so could have a great 1H 2020 even during a Corona inflected recession. In fact management already stated January was great!

I went through the company's filings and the short thesis.

 

It looks like a pretty good business, but hard to gauge looking at the financials. The only way to figure out what's going on in the business is through the cash on cash IRR statement that they have:

https://www.burfordcapital.com/shareholders/investment-portfolio/#concluded

 

This indicates a 32% return IRR on invested capital. It does not seem to include SG&A, which is 7-8% of invested capital annually, so say net IRR is actually 25%. Probably does not include tax but let's ignore that for now and say 25%.

 

The company is currently trading around book value, so I got interested. After all, not every day you get to invest in a high IRR business at book value.

 

But then it hit me that the table that computes the 25% IRR has nothing to do with book value, since it includes quite a lot of fair value markups. So if HY2019 investments are 1.7B$, the cash investment is probably around 1B$. So the 25% is on 1B, not 1.7B.

 

Hence if I am paying around 2B$ for the company (current EV), I am actually getting a 1B$ worth of assets on which they are making me my 25%, a book value of 2.

 

Now this doesn't sound like the best deal in the world to me, it actually sounds like fairly priced to moderately cheap.

 

Taking into account that it is extremely difficult to make predictions regarding future returns, I would say that I am not that interested in the current price. Maybe if the EV hits something close to their cash investment in the litigation assets - but that is another 60% down from here.

 

Yes, management seems pretty good and an interesting business but too opaque and not cheap enough in the bottom line.

 

P.S. I wasn't too impressed by the short thesis except that the company was way overpriced.