BUR.L - Burford Capital

[Gregmal]

Any thesis would have to be based around the accounting.

 

The teasing has no mention of anything directly or indirectly relating to BUR in a way one could guess. Someone already knows, and gave it away via the price action. Same thing happened with HLF.

 

Curious to see how the other names respond. LIT went down a bit too. Still a great, market neutral business to be in.

 

It was simply the London reference.

 

Yea but tons of companies trade in London. I didn't see anything that linked BUR even remotely. Why did this get hit harder than LIT, which also trades there? Gotta be a leak and simply someone front-running the presentation. Given the move today, if it is indeed BUR, I have a suspicion this will get crushed tomorrow. I still have a position; not selling, not adding either.

[Normax59]

Any thesis would have to be based around the accounting.

 

The teasing has no mention of anything directly or indirectly relating to BUR in a way one could guess. Someone already knows, and gave it away via the price action. Same thing happened with HLF.

 

Curious to see how the other names respond. LIT went down a bit too. Still a great, market neutral business to be in.

 

It was simply the London reference.

 

Yea but tons of companies trade in London. I didn't see anything that linked BUR even remotely. Why did this get hit harder than LIT, which also trades there? Gotta be a leak and simply someone front-running the presentation. Given the move today, if it is indeed BUR, I have a suspicion this will get crushed tomorrow. I still have a position; not selling, not adding either.

 

I was saying that people assumed based on the London reference.

 

Again, I was looking into shorting this stock and my premise was never a liquidity crisis, taking all operating profit and subtract unrealized gains for the period, you still get 90MM in operating profit versus $22MM in debt service. They could also slash their dividend.

 

[Gregmal]

We'll see tomorrow. Battleground stocks are fun!

[cameronfen]

Any thesis would have to be based around the accounting.

 

The teasing has no mention of anything directly or indirectly relating to BUR in a way one could guess. Someone already knows, and gave it away via the price action. Same thing happened with HLF.

 

Curious to see how the other names respond. LIT went down a bit too. Still a great, market neutral business to be in.

 

It was simply the London reference.

 

Yea but tons of companies trade in London. I didn't see anything that linked BUR even remotely. Why did this get hit harder than LIT, which also trades there? Gotta be a leak and simply someone front-running the presentation. Given the move today, if it is indeed BUR, I have a suspicion this will get crushed tomorrow. I still have a position; not selling, not adding either.

 

LIT is probably too small for muddy waters to bother.  Also they don't iirc mark to market.  I don't think this is about litigation finance in particular if it is about BUR, but its accounting issues particularly.  Unless they have a bombshell it seems to me there are better companies to short than one that had legitimately good compounding ability in a secular growth industry. 

[LaGrandeBelleza]

Any thesis would have to be based around the accounting.

 

The teasing has no mention of anything directly or indirectly relating to BUR in a way one could guess. Someone already knows, and gave it away via the price action. Same thing happened with HLF.

 

Curious to see how the other names respond. LIT went down a bit too. Still a great, market neutral business to be in.

 

It was simply the London reference.

 

Yea but tons of companies trade in London. I didn't see anything that linked BUR even remotely. Why did this get hit harder than LIT, which also trades there? Gotta be a leak and simply someone front-running the presentation. Given the move today, if it is indeed BUR, I have a suspicion this will get crushed tomorrow. I still have a position; not selling, not adding either.

 

I was saying that people assumed based on the London reference.

 

Again, I was looking into shorting this stock and my premise was never a liquidity crisis, taking all operating profit and subtract unrealized gains for the period, you still get 90MM in operating profit versus $22MM in debt service. They could also slash their dividend.

 

What was your premise for shorting it if I might ask?

 

Additionally MW targeting BUR rumour seems to come from this UK publication https://www.shareprophets.com/views/44083/muddy-waters-set-to-destroy-london-cmpany-at-8-am-wednesday-ist-it-burford these guys have already made some short comments - without much merit in my opinion - in the past regarding the company.

 

I'm wondering if it'll finally be Burford on the short report, there are some weak points to argument for a short case but potentially insolvent and possibly facing a liquidity crunch are not in my book.

[Spekulatius]

Looks like folks got in here right in time for the spanking....

 

Luckily for me, this went into the too hard pile.

[Gregmal]

I actually like Muddy waters and think for the most part their work is higher quality. I've found there are 3 types of short sellers.

 

1. Citron type- this is dog shit, I'm short. very keen ability to see where something stands in the grand scheme of things. promotional

2. Chanos/Einhorn- the accounting dorks who just seem to miss the bigger picture but once in a while see something arcane that no one else does and hit big

3. Muddy Waters/Kerrisdale- very, very detailed, sensational, a combination of the above two but often go to great lengths to find dots and then connect them to tell the story they've already decided they want to tell. Main objective IMO is often to scare people and trade their own noise. Anyone remember the American Tower short?

 

If a company wants to play games they can and its next to impossible to tell until its too late. But too many people have looked at this and kind of gotten into the same ballpark. Its expensive but has a massive runway. After some brainstorming and a few calls, I'm leaning towards adding if we get a other draw down tomorrow unless there is something presented that is an entirely new informational bombshell. I mean even if the current accounting is f*cked, this means next to nothing on a go forward basis, especially after a haircut on the valuation.

[SnarkyPuppy]

Looks like folks got in here right in time for the spanking....

 

Luckily for me, this went into the too hard pile.

 

Value investor:  Volatility is not risk.  Returns should be measured over 3-5 years minimum.

 

Also value investor:  Rumors on unconfirmed short report return companies valuation to an efficient price within 2 months.

[Spekulatius]

I agree that it’s hard to tell if numbers are fraudulent, but it is possible tell companies that have an above average likelihood to do so:

 

Examples : SAAS companies (pot. maskerading operating expenses and discounts as marketing expenses), manipulating not GAAP metrics like customer retention, customer acquisitions costs.

TDG: fleecing customers (which can be an issue if the customer of Uncle Sam), pot. Aggressive accounting

BA: see thread, aggressive Accounting, cutting corners on products, running the company for stock price, outsourcing core competencies

TRUP: maskerading operating expenses as marketing expenses, pot. Misrepresenting non GASP KPI metrics.

I can’t say for sure that the above companies massage their numbers, but I think I can tell for sure that these companies have a way above baseline risk of doing so.

 

I have lately observed that the gap between the GAAP and the non GASP operating earnings seems to get larger and larger -isn’t that strange during a time when the economy is doing well 10 years into a cycle? While most of it is legit, as a whole it doesn’t make sense for the gap to increase, so I am sure their are some ugly things we will learn when the tide goes out in the recession.

[Gregmal]

I agree that it’s hard to tell if numbers are fraudulent, but it is possible tell companies that have an above average likelihood to do so:

 

Examples : SAAS companies (pot. maskerading operating expenses and discounts as marketing expenses), manipulating not GAAP metrics like customer retention, customer acquisitions costs.

TDG: fleecing customers (which can be an issue if the customer of Uncle Sam), pot. Aggressive accounting

BA: see thread, aggressive Accounting, cutting corners on products, running the company for stock price, outsourcing core competencies

TRUP: maskerading operating expenses as marketing expenses, pot. Misrepresenting non GASP KPI metrics.

I can’t say for sure that the above companies massage their numbers, but I think I can tell for sure that these companies have a way above baseline risk of doing so.

 

I have lately observed that the gap between the GAAP and the non GASP operating earnings seems to get larger and larger -isn’t that strange during a time when the economy is doing well 10 years into a cycle? While most of it is legit, as a whole it doesn’t make sense for the gap to increase, so I am sure their are some ugly things we will learn when the tide goes out in the recession.

 

Without calling out specific names, I can tell you that of the 7 friends/family I know who work at public companies, and the handful I know working at big 4 firms... almost every company screws with its books. An immediate family member works for one of the Amazon whipping boy retailers. Every quarter expenses get pushed out, marketing costs gets shuffled around, revenue gets booked either earlier or later if it's convenient. Guidance is purposely given significantly below internal metrics... I think investors long ago needed to accept certain "uncertainties" or just plain avoid specific types of investments. While I can tell you on a very granular level every item stated by FRPH or CTO is safe...GM? Not a chance. GOOG... Even MSG(although its probably fine, who knows what Dolan is really spending money on)... This is why I tend to have super concentrated portfolios in things I intimately understand, and then small pockets of risk money to just let it ride and hopefully get some easy alpha elsewhere.

[Packer16]

One issue here is do these guys have 3rd party marking of their book?  I does not sound like it.  In BDCs & other folks that have illiquid investment have both third-party appraisers and auditor appraisers reviewing marks developed by managment.  I also question whether this type of firm needs to be public as the disclosure to a level that a typical investor would require to see if the case valuation is reasonable cannot be discliosed due to client confidentiality.  There is also a built in conflict between investments for thier book vs. third-party capital.  How do you chose who gets what of your origination?  Brookfield has removed this by having a cross section of thier funds that investors and management can hold.  The business value here is based upon confidence & if you are not squeeky clean your adversaries in lawsuits can make your life misable & your funding sources can dry up.  These guys appear to be dependent upon having deep pockets & financing. If not, the asset values could quickly disappear.

 

Also, unless these guys have discovered something no else has, it appears they are using some lucky wins vs. the rest of the market to imply that this is repeatable & no one else will do it also.  They have set exepctations high in business where confidence is important.  Usually not a good combination.  I may be wrong but just a few observations.

 

Packer 

[no_free_lunch]

Packer, its a good point.  They are working to develop trading markets for their cases but I believe Peterson is the only current example.

[peterHK]

One issue here is do these guys have 3rd party marking of their book?  I does not sound like it.  In BDCs & other folks that have illiquid investment have both third-party appraisers and auditor appraisers reviewing marks developed by managment.  I also question whether this type of firm needs to be public as the disclosure to a level that a typical investor would require to see if the case valuation is reasonable cannot be discliosed due to client confidentiality.  There is also a built in conflict between investments for thier book vs. third-party capital.  How do you chose who gets what of your origination?  Brookfield has removed this by having a cross section of thier funds that investors and management can hold.  The business value here is based upon confidence & if you are not squeeky clean your adversaries in lawsuits can make your life misable & your funding sources can dry up.  These guys appear to be dependent upon having deep pockets & financing. If not, the asset values could quickly disappear.

 

Also, unless these guys have discovered something no else has, it appears they are using some lucky wins vs. the rest of the market to imply that this is repeatable & no one else will do it also.  They have set exepctations high in business where confidence is important.  Usually not a good combination.  I may be wrong but just a few observations.

 

Packer

 

They have an auditor.

 

Does [insert PE/VC firm here] have a third party outside an auditor doing their marks every quarter? Pretty sure they get to figure out what they want to mark it at based on principles set out by GAAP/IFRS and PE/VC best practices, but there's still a lot of mgmt discretion. Same with any contract business where you have % of completion accounting etc.

 

"Lucky wins", so what do you call Benchmark or Kleiner Perkins? Is every homerun for them just a "lucky win"?

 

The business value here is based on CASH, just like every other business. They realize cash, you can figure out how much if you look at commitments less equity and debt raises.

 

 

[Packer16]

One issue here is do these guys have 3rd party marking of their book?  I does not sound like it.  In BDCs & other folks that have illiquid investment have both third-party appraisers and auditor appraisers reviewing marks developed by managment.  I also question whether this type of firm needs to be public as the disclosure to a level that a typical investor would require to see if the case valuation is reasonable cannot be discliosed due to client confidentiality.  There is also a built in conflict between investments for thier book vs. third-party capital.  How do you chose who gets what of your origination?  Brookfield has removed this by having a cross section of thier funds that investors and management can hold.  The business value here is based upon confidence & if you are not squeeky clean your adversaries in lawsuits can make your life misable & your funding sources can dry up.  These guys appear to be dependent upon having deep pockets & financing. If not, the asset values could quickly disappear.

 

Also, unless these guys have discovered something no else has, it appears they are using some lucky wins vs. the rest of the market to imply that this is repeatable & no one else will do it also.  They have set exepctations high in business where confidence is important.  Usually not a good combination.  I may be wrong but just a few observations.

 

Packer

 

They have an auditor.

 

Does [insert PE/VC firm here] have a third party outside an auditor doing their marks every quarter? Pretty sure they get to figure out what they want to mark it at based on principles set out by GAAP/IFRS and PE/VC best practices, but there's still a lot of mgmt discretion. Same with any contract business where you have % of completion accounting etc.

 

"Lucky wins", so what do you call Benchmark or Kleiner Perkins? Is every homerun for them just a "lucky win"?

 

The business value here is based on CASH, just like every other business. They realize cash, you can figure out how much if you look at commitments less equity and debt raises.

 

They do have an auditor.  Typically BDCs have 1/4 of thier portfolio revalued every quarter & also where there is an indication of impairment.  Also with a BDCs the third-party appraiser is given enough data to estimate the value of the security based upon inputs that can be checked with market data.  In this case, the firm itself says it will not give analysts the data required to make an estimate of value of the cases so it is impossible to check the imputs to the model with market data, you are truly trusting management with no verification.

 

The only cash I see is the realized cash from cases.  The large amount of unrealized gains is based upon a model that has assumptions management will not provide so you cannot even determine if the assumptions they use is reasonable.  This may work out but there is not enough data for me to get comfortable.  This also appears to be a capital intensive business & IMO the business is not set up to provide transparency so investors can get comfort with market data what thees guys are doing & I can see in a panic how this firm could lose access to the capital markets.  The small sample size also maginifies the effect chance has on the investment outcome.

 

Packer

[LaGrandeBelleza]

https://www.investegate.co.uk/burford-capital-ltd--bur-/rns/statement-re-share-price-movement/201908070700062085I/

 

"There is a clear line between appropriate commentary and market manipulation, and Burford is investigating, with the assistance of market experts and experienced outside litigation counsel, the market activities here and will take appropriate legal action should we discover actionable misconduct.  We are strongly suspicious that yesterday's significant fall in the share price was based on such actionable misconduct."

 

8:23 London and MW hasn't come up with any report as yet

[writser]

aaaand it's online:

.

[John Hjorth]

aaaand it's online: https://twitter.com/muddywatersre/status/1159009733631569920 . Covered my position for a 13% profit. I'll gladly leave it to others smarter than me to actually analyze the company and the allegations.

 

writser,

 

Next question is : How do you calculate the IRR of 13 percent generated in approx. 23 minutes? [ ; - D]

 

- - - o 0 o - - -

 

I always enjoy following your fast moves!

[Jerry Capital]

Good find writser, have you done that with their reports before? Very smart thinking.

[writser]

Getting close to book value .. -40% as of now on top of -20% yesterday. Tempted to get involved on the other side but this still probably belongs on my too-hard pile.

[Gregmal]

Yawn....

 

Aggressive account, they marked the Napo case as a receivable and then used esoteric and unconventional methods to get paid. Then the stock went down and then they wrote it off...

 

Petersen is already price in....

 

Litigation finance may not be a great, predictable business...

 

If they have no access to capital(seriously?) and no cash can be generated from their unrealized gains... then they'll have a liquidity crunch and may be insolvent.... uhm... duh..

 

What I found as odd though, is with all the innuendo and talk of impropriety, not once is the word fraud mentioned, by a guy who throws that word around like its no big deal.

 

 

[Normax59]

Yawn....

 

Aggressive account, they marked the Napo case as a receivable and then used esoteric and unconventional methods to get paid. Then the stock went down and then they wrote it off...

 

Petersen is already price in....

 

Litigation finance may not be a great, predictable business...

 

If they have no access to capital(seriously?) and no cash can be generated from their unrealized gains... then they'll have a liquidity crunch and may be insolvent.... uhm... duh..

 

What I found as odd though, is with all the innuendo and talk of impropriety, not once is the word fraud mentioned, by a guy who throws that word around like its no big deal.

 

Calling a company full of lawyers frauds seems like a fantastic idea.

 

They’ve threaten journalists with lawsuits over poking questions.

[Normax59]

Just to run through some numbers out there since the report is finally out and MW didn’t touch on this, they report in their 1H18 that 35% of gains are recognized before conclusion or a partially realized gain, it’s then reported at 33% in the 2018 AR, you apply that number to total realized gains over the life of the company you get $143.MM meaning they converted that much of unrealized gains to realized on a net basis. Add some Petersen to that number for 1H19, call it $173.3MM.

 

They then currently have $773MM of unrealized gains on the balance sheet, most of the converted net realizations come from Petersen (unknown) and Teinver ($56MM).

 

If Petersen is marked at $400-$500MM the question becomes what the hell are they writing up.

[Gregmal]

Yawn....

 

Aggressive account, they marked the Napo case as a receivable and then used esoteric and unconventional methods to get paid. Then the stock went down and then they wrote it off...

 

Petersen is already price in....

 

Litigation finance may not be a great, predictable business...

 

If they have no access to capital(seriously?) and no cash can be generated from their unrealized gains... then they'll have a liquidity crunch and may be insolvent.... uhm... duh..

 

What I found as odd though, is with all the innuendo and talk of impropriety, not once is the word fraud mentioned, by a guy who throws that word around like its no big deal.

 

Calling a company full of lawyers frauds seems like a fantastic idea.

 

They’ve threaten journalists with lawsuits over poking questions.

 

Wouldn't it be smart to bait them into a frivolous lawsuit in which they'd take time and precious capital away from their business? It would help with the liquidity crunch.

 

There is really nothing new here. Total nothing burger. In fact, I'd even say kudos to Schwab for more or less touching upon much of this earlier in the thread.

 

Just added a bit. Planning to add into LIT and IMF as well.

[Normax59]

Yawn....

 

Aggressive account, they marked the Napo case as a receivable and then used esoteric and unconventional methods to get paid. Then the stock went down and then they wrote it off...

 

Petersen is already price in....

 

Litigation finance may not be a great, predictable business...

 

If they have no access to capital(seriously?) and no cash can be generated from their unrealized gains... then they'll have a liquidity crunch and may be insolvent.... uhm... duh..

 

What I found as odd though, is with all the innuendo and talk of impropriety, not once is the word fraud mentioned, by a guy who throws that word around like its no big deal.

 

Calling a company full of lawyers frauds seems like a fantastic idea.

 

They’ve threaten journalists with lawsuits over poking questions.

 

Wouldn't it be smart to bait them into a frivolous lawsuit in which they'd take time and precious capital away from their business? It would help with the liquidity crunch.

 

There is really nothing new here. Total nothing burger. In fact, I'd even say kudos to Schwab for more or less touching upon much of this earlier in the thread.

 

Just added a bit. Planning to add into LIT and IMF as well.

 

Yes really smart, maybe LIT and IMF can fund it for them.

[matts]

Yawn....

 

Aggressive account, they marked the Napo case as a receivable and then used esoteric and unconventional methods to get paid. Then the stock went down and then they wrote it off...

 

 

Sure, but leaving the ROIC of the "closed case" so high for so long was very misleading. Looks like this company lacked the resources to pay the debt. Also, the stock of jaguar plunged in 2017 and by the end of 2018 was around today's levels. If according to the report, Burford only wrote down the case in H1 2019, how do you explain that? Either it should have not been written down at all because the equity isn't "part of the case", or it should have been written down much sooner.