Burford Capital Ltd (lon:bur)
Burford Capital – 2019 Annual Report


ItemCurrent PeriodPrevious Period
Period12 Months12 Months
Adjusted Earnings
Adjusted EBITDA
Statutory Profit$226m$328m
Adjusted Profit
Total Debt$700m
Net Debt
Title: Burford Capital – 2019 Annual Report
Company: BUR - Burford Capital Ltd
Share Price Then: 478p
Author: Ian Smith
Date: Tue 28 Apr 2020
Comments: Burford have just released their 2019 full year update and this has sent the shares soaring.

The thing is that nothing seems to have changed!
So I don’t understand the surge as the arguments against the company that sent the shares plunging don’t seem to have changed.

The Petersen case, the one against the government of Argentina is brought out into the open and used as an argument for why we are doing well. It is true this case has turned out very well for the litigation part of the group,

success from our funding of the Petersen litigation, enabling us since 2015 to sell 38.75% of our interest in its outcome for cash proceeds of $236 million and our total deployment in Petersen remains below $20 million

This is staggering, how can any one complain?

But go back and look at the questions raised about the value of the sales and the purchaser when it was suggested that the purchaser was a fund managed by Burford and as far as I can see this has not been addressed. Burford also promotes this success as being part of the strategy and not a one off, but there doesn’t seem to be another example.

That success has had three impacts on our business.
First, we have been able to use the cash generated by the Petersen sales to finance the growth of our business.

The trouble here is that if the purchaser was at least in part a Burford managed fund over paying then this is sort of a transfer of funds from one part of the business to another.

Second, we have been able to rely on the cash profits provided by those sales during a period when our profitability would otherwise have been considerably lower while we wait for the higher volumes of business we have written recently to turn into cash profits

For a start-up business this remark would be completely reasonable but Burford are not a start up and have funded many cases that have been brought to a conclusion.

The third impact is an accounting one: We are required to account for our litigation assets at fair value. In traditional ongoing litigation, without any secondary sales to third parties, the accounting impact of fair value accounting is modest.

Again the trouble here is that if the purchaser was at least in part a Burford managed fund over paying then the value of their remaining share is overstated.

There is a still lot of trust us in the report and one really big measure, We are pursuing a dual listing in the US is still a work in progress partially blamed on COVID 19 slowing down the audit.
Interesting when talking about COVID 19 they say puts pressures on corporate legal departments and their law firms, conditions that increase demand for our capital and services.

This could be true or it could be that next year we see something like COVID 19 has dramatically affected our ability to bring cases to conclusion.

Whether the Petersen case ever pays out money has to be a debatable case the defendant is a government so it is a not just a question of who will the case but even if the defendant loses will it pay.

Burford are still investigating possible market manipulation for the 6&7 of August 2019 and I understand why they are interested, but to me this is now history.

So we seem to be back to the position we were in before the report was published, do you believe the company and the good times in terms of profitability are just around the corner or do you believe that the company has a massive amount of capital committed to legal cases that result in the company roughly breaking even?
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Previous Commentaries On Burford Capital Ltd
Date Share Price Author Commentary
Wed 12 Feb 2020625pIan Smith

Burford – Now Undervalued Or Are Muddy Waters Right?

I have been following Burford Capital since Muddy Waters investigations hit the share price, as an AIM listed company I would not normally be interested but MW could be wrong.

If MW were wrong then there may have been an opportunity to buy at the bottom of a rapid and big share price rise.

I don’t want to repeat MW’s analysis but it seems to me that their initial report was substantially correct and there is not about to be a recovery.

I get the fact that Burford have been clear that good performance is dependent on winning some big cases as well as winning the more main stream and lower value cases and If MW hadn’t made me cautious the text below sounds superb.

….with January 2020 seeing litigation successes that would trigger unrealised gains and, if ultimately affirmed and paid, would generate more than $150 million in profits across the Group and more than $100 million in balance sheet profits from a single month's activity. Had January's events occurred in December, Burford's 2019 results would have been materially higher as Burford would have been obliged to take a meaningful portion of those future expected profits into income immediately.

But reading it more carefully it seems to be saying that the $150m has not been paid but we think that we are entitled to it so we expect it to be paid so we will count it as paid.

Hopefully this is not the Farkhad Akhmedov owned $450 million super yacht that has just been released in Dubai as it has been reported that Tatiana Akhmedova was funded by Burford with £18 million in exchange for 30% of any proceeds.

Please tell me that Burford are not saying we have no actual cash coming in to report so we will report possible cash.

Again if MW hadn’t got me worried I would have been happy with the $100 million sale of part of the proceeds of the Petersen case. Then the stories started and haven’t been denied that about a third of this sale seems to have been to a fund managed by Burford.

One of MWs arguments is that the number of big wins is small, only 4 cases since 2012 so such a sale worries me as it may be an accounting success rather than a cash success.

So what about the US listing, is this genuinely going to happen or will it get bogged down in arguments about accounting standards?

If it does happen will a bunch of analysts in the U.S. start looking at the company and say we’re on the MW side of the fence and can’t recommend the company or here is a bargain being held back by being listed on a fairly obscure exchange, The AIM?

All of this doesn’t mean that there isn’t a solid business underneath a layer of optimistic presentation, but is this business really worth 200p per share rather than 1,500p?

Burford has published a chart of returns at which is interesting.

Currently Burford has a P/E of a bit under 5, this in itself worries me as it suggest that even an the pre MW collapse price of around 1,600p the company would be fairly valued.

I know that being on the AIM makes it difficult for some significant investors to buy and with accounts that seem to show a company that is comfortably and genuinely above break even every year why?

The 2019 HY report said Moreover, it is notable that during the first half of 2019, only 49% of our income was from unrealised gains, I understand that once you get used to reporting on hard to value assets this statement may seem day to day normal, the last HY report had $1.65bn of Level 3 assets, presumably results or expected results of litigation.

But it seems that the Petersen/YPF case seems to has grown in value from $666m, to $1bn yet there is no certainty that the Argentine government is minded to pay.

There are also four significant bonds to be aware off.

Amount Due Date
$120,566,000 19 August 2022
$135,552,000 26 October 2024
$223,018,000 1 December 2026
$181,890,000 12 August 2025

I am also following NMC and it is pretty clear that MW were right to call that company out. As shown by the announcement that the major share holders are unsure who actually owns a large number of shares and that many have been pledged as security for loans without this being disclosed.