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Burford Capital - It Still Doesn't Quite Convince Me

Mar. 05, 2021 9:00 AM ETBurford Capital Limited (BUR)BRFRY26 Comments
Tim Worstall profile picture
Tim Worstall


  • Burford Capital was subject to a hard-hitting Muddy Waters short-selling report alleging inconsistencies in profit realisation.
  • The stock dropped like a stone and management insisted they would do things differently and they do seem to have done so.
  • The end result looks impressive but it still just doesn't quite convince if I'm honest about it.

Burford Capital (NYSE:BUR) and litigation finance

There's no absolute reason why financing legal cases shouldn't work as a business plan. Going to law in a complex case is expensive. Commercial cases can be about considerable sums of money. So, there's every possibility that there's room in there for someone to finance cases in return for a piece of the recovery.

This being the business Burford Capital is in and as I say there's just no reason at all why there shouldn't be someone successful in this space. The second question though is whether these are the people who are going to be so.

Muddy Waters

It looked like Burford was being successful in this space, the stock was up at around £20 on London's AIM market (the junior part of the London Stock Exchange) at one point. Then in came Muddy Waters with a short-selling report and it's fair to say that they weren't the only people with the occasional question about how the firm was really doing rather than how it was reporting it was doing.

The stock slumped as a result and hasn't, really, recovered since then. This leaves open the obvious question therefore – should it have done? If the management has changed what was previously perceived to be at fault and is also reporting entirely reasonable returns then perhaps the stock should be "re-re-rated" back upwards?

This is not something that has an absolute answer. It depends upon what everyone else thinks about the stock for a start, so we're trying to second guess other peoples' actions. The best we can do is try to come to some view about the stock ourselves, take our preferred actions and then hope that everyone else catches up with us at some point.

My answer here is that I'm

This article was written by

Tim Worstall profile picture
Tim Worstall is a wholesaler of rare earth metals and one of the global experts in the metal scandium. He is also a Fellow at the Adam Smith Inst in London and an writer for a number of media outlets, including The Times (London), Telegraph, The Register and even, very occasionally indeed, for the WSJ. This account is linked with that of Mohamad Machine-Chian: https://seekingalpha.com/user/52914142/comments

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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Comments (26)

Don't bother writing something if it is going to be this lazy.
Will104 profile picture
FY 2020 results out

Slightly down on prior year - but crucially with no Peterson gains

Given the year it’s not a bad set of results

10x PE adjusted for amortisation and US listing costs
@Will104 I wonder why they are not paying a higher dividend. I would think they should be paying a divided of 4-5% or at lease commit to paying out a certain amount of their cashflow in the form of dividends and/or buy backs.
Will104 profile picture

They’ve got $1bn of committed and uncommitted pipeline funding 

So there’s no room for a material divi or buy backs 

Which is a good thing - don’t give me my money back when you can get near 2x over c2 years on it
If when you make a sum of the parts valuation for a conglomerate you take the market value for quoted investments as a proxy, you should do the same here with the Petersen case. The management is just asigning a value to the investment in line with the price at which it sold a stake. Another thing is whether you should consider that as a one-off or recurrent income. That should be your work as an analyst.
You lost me at "My read of this is slightly cynical. Litigation financing is not really a well known thing in England, in English law, or the English market. It's, as far as I know at least, much more common in the US. So, we might expect a more serious valuation to be applied by a US market to the same stock." Au contraire, litigation financing for commercial cases is more the rule than the exception in the UK, still coming into its own in the US (we have contingency lawyers, they don't). Their system endorses it (access to justice and all that). Our system is state-by-state, still fighting ethical and legal battles in some places as to whether funding is even permissible. Big picture you could be right on the stock, but the market for the product is the other way around.
Tim Worstall profile picture
@IL Cricket Hmm, well, maybe:


A £2 billion market up from £350 million in 2014. To someone of my age that's a mere babe in arms.

I take your correction though....
Austin Newsom profile picture
"...the management has promised to be much more careful about revenue recognition" Do you have a source for that? I don't recall BUR management promising any such changes, or admitting that anything was ever wrong with its revenue recognition.

YPF-related claims are carried on BUR's balance sheet for $773 million USD, not 773 million GBP.

I don't understand the point of discussing the YPF cases without mentioning that BUR has already collected over $200 million USD in cash from selling off pieces of its stake in the Petersen case. Those stakes sales are the reason BUR has marked the stakes up.

My understanding is that the Petersen case is currently scheduled to go to trial early next year, so calling the current YPF-cases status quo "near-permanent" is odd. While the litigation can move slowly, this situation isn't going to languish forever with no new developments.
VMCH Corp profile picture
Unfortunately a very superficial article. Some assumption are also factually wrong, such as them recognizing significant non cash income in the p&l that hasnt materialized withing a short timeframe.
Tim Worstall profile picture
@VMCH Corp Err, the Peterson claim has produced no cash as yet and yet significant amounts of it have been recognised.....
@Tim Worstall I don't believe that is correct: BUR has sold material portions of its Petersen claims for very significant sums, with the cash received having been added to the balance sheet and being reinvested in new and separate claims.
Tim Worstall profile picture
@Loans The entire Muddy Waters thing was about revenue recognition. As the company has said they've received actual cash for a number of claims this year. That's great. But the big ones are still there, no cash received as yet. That's the point.
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