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Oh there is much better. Same PEG as BUR and higher returns. Lower P/E actually. Look harder :)
The closest comparable share that I come up with with regards to growing cash flow is Facebook. Absolutely printing cash. FB is probably a great investment going forward but the valuation is multiples of BUR and so lacks the extra margin of safety I crave.
Thanks for your opinion LN. In my search for companies with numbers as good as Burford, I simply come up blank. Sure there are software companies with growth rates above 30%. But that is usually revenue growth not NET PROFIT growth. They are often loss making or barely cash flow positive with huge stock dilution from share options. On top of that they trade at 10-30 x revenues. For my hard earned cash, they are a no go. I have a large BUR position and every month when I am looking to invest some cash I look at the market and it goes into BUR. Nothing else compares on cash flow, ROE etc. Gross and net margins beat even the best software companies. Add in BUR is not very cyclical and possibly counter-cyclical, that gives me a huge amount of comfort about my over sized position.
For the last 3 years BUR has generated around $500 million of cash annually. That is a 25% cash flow yield straight up. Take out the NAV and the annual yield is in the hundreds of percent.
Looking forward, Burford currently has a $4 billion investment portfolio (of which 65% is BUR balance sheet). They have consistently earned a 30% ROI over the years. Based on the 30% ROI, history would suggest that for the next few years BUR could generate cash flows of up to $1.2 billion annually. My best guess would be that cash flows will rise to $1.2 billion annually in a lumpy and non linear fashion over the next 3-4 years. 30% of $4 billion = $1.2 billion.
Add in the fact that BUR is reinvesting almost every cent of profit back into the investment portfolio annually; this gives me further reassurance that this level of cash flow is achievable. Compounding magic. 30-40% annual NET PROFIT GROWTH all be it in a lumpy manner seems the most likely outcome. Again I cannot find anything else on any market that compares especially given the fact we can buy BUR today barely above NAV. The business and future cashflows are essentially free.
Now of course there are many risks, most outlined in the financial reports, but to me the risks are below that of the average listed company specially compared to the risks in banks and other financials. Huge moat as industry leader in size and track record. Because of the lumpy nature of BUR results the share price volatility in BUR shares is likely to remain well above average. Big swings, up and down, are very likely to continue for the medium term. Do not use any leverage with BUR shares, a recipe for disaster. This volatility makes BUR unsuitable for a large portion of investors.
dublin2: "Every time I try to diversify my holdings away from Burford I cannot justify it."
I do disagree with that statement. Not to contradict you, but there are quite a few interesting opportunities out there trading at an even greater margin of safety than Burford.
I am long Burford and I really like their proposition. So I am not saying that it is a bad position to hold, au-contraire, but it is important to remain open to the other opportunities to make one's hard earned cash work.
As far as the valuation for BUR is concerned, it is a bit skewed since important results came in AFTER their reporting deadline for the 2019 filing. Nevertheless, as a litmus test I tend to use an adjusted version of the Graham Formula.
The first test I run is whether the company sells at a 50% discount with at least a growth equal to the average rate of inflation over a 20 year period (3.75% - NOS).
Using a price of 721.00 with that growth rate and a TTM Eps of 65.7p (and 20yr bond yield of 4.6%) I get a fair value of 675.57 and a buy under 337.78p. I imagine quite a few people took a similar view recently.
However, taking their annual compounded growth rate over the last 5-6 years (CAGR) which is about 34% (stunning) of NET PROFIT GROWTH (let that sink in), the the fair value turns out to be 2576p with a buy under 1288p.
I'd imagine the reality is anywhere in-between, and the likelyhood of positive surprises can literally make the whole valuation jump dramatically (someone accused me being a fraud on this forum for pointing that out -- go figure).
So yes, it is a great proposition and I would love for the price to remain depressed for quite some time since it take me a lot of time to build a meaningful position (right now I am on the buy side :) -- it's in my interest for the price remaining low).
Just to put a few numbers in the air. Note that the Graham Formula is a litmus test and not something we would do when actually putting a purchase value on a business or for auditing purposes. However, it served me well over the last decades ;)
Hope you find this interesting. What are your estimations and expectations as to net profit growth over the next five years?
Best, LN
Investors.
and Good night.
Yuri one of burfords main priorities is to strongly and comprehensively establish the financial strengths of the company or certain person's that they are pursuing a lawsuit against, if they don't feel they can pay or up, or the likelihood of getting a settlement from them is strongly identifiable, then no matter how strong the case it's simply dropped, that's why we drop 93% of the cases brought to us, the standard of let's say cherry picking is extremely high with burford,
That's not to say extraordinary things won't happen, but that very scenario is already built into burfords business model and planning, so the likelihood of what your saying is thankfully extremely low or negligible,
But to be fair to you none of us have ever experienced a global pandemic, or seen its total financial outcome on big business,
Though I'm very confident burford will truly thrive after the dust has settled on this global damaging pandemic, burford
They deliberately and specifically target different types of companies in different types of industries , that way the reduce or substantially minimize any harmful financial exposure to burfords lawsuits and settlements,
That's why burford is a truly recessionary proof/ resistant business model, yes I see a drop in New lawsuits activity for several months, but remember we cherry pick and reject 93% of cases anyway, so I'm still sure there's plenty to choose from after this pandemic lifts,
I actually don't even think burford needs to get involved in any covit19 lawsuits anyway, there was a abundance of lawsuit work in the last recession and obviously without any pandemic lawsuits at all.
I'm 100% confident we will easily win our Argentina lawsuits, I feel the award could easily be around $6 billion , though I believe the Argentinean government will be desperate to settle the case for around $ 1.5 billion in sovereign bonds , with burford then asking for $3 billion and burford settling for $1.8 billion in sovereign bonds in this terrible financial climate,
Argentina has I think around $6 billion in its countries reserves, that's not a lot to fall back on when running a country, though it will digitally just do some Quantitative easing and print $1.8 billion of sovereign bonds for burfords settlements, then they only have to concern themselves about paying the interest on them sovereign bonds, considering the countries financial plight that seems fair, but then I would say that LOL,
I feel it will as you say YURI take burford some time to push through the court systems, though humans can be ingenious in overcoming disasters and every type of obstacle put before them, this pandemic is no different, we will get the better of this virus and power ahead to establish a litigation funding company making 3/4/5 + hundred million dollars per year and potential even much higher , burford shares are not for the orphans and widows, they are for smart
Yuri
I note your description of bankruptcy risk. However you must know that what you are describing is part of the risk management that Burford will be undertaking as a matter of course, and certainly as we move forward into Covid cases.
I appreciate that some investment may have been made under assumptions that may have now changed, but the danger of the opposition going broke is ever present - it is a known tactic of certain companies, particularly when they see themselves in a no win position.
Yhttps://www.thetimes.co.uk/edition/business/natasha-harrison-the-lawyer-from-croydon-shaking-up-manhattans-boies-schiller-2lbvhc3m3
Yuri you make some very valid points but it's not only Buford singing the other tune
It may well turn out that some cases we are already involved in turn out the way you suggest but I'm sure Burford will be cherry picking the extra work that lands on their desk because of covid
Regards
ffc
You guys are forgetting about a small but crucial thing on Covid impact - in short: it doesn't matter whether bur wins case if there's nothing left to monetize out of such victory, e.g. client is already bankrupt/liquidated/died (as many companies and individuals will end up with after Covid dust is settled), plus there's new legislation on it's way to protect companies and individuals under these harsh conditions, then taxation is cooking too (to pay this debt), also as they mention themselves (one of their videos - something about market trends, risks and opportunities) - court system is already overwhelmed by all these pending cases + new claims/etc. thus it is very likely to take much longer to get an outcome, total mess over the mid-term (another negative vector for present value) ..
Bur has deployed (invested) capital under one set of assumptions but new realities are a bit different, part of this capital is already lost, another just went trough downgrade on expected returns.
IMO - lmost similar situation with lending/banking: loans were issued on an assumption of much lower defaults, but here we are..
PR does not drive percevied market value and potential growth
It helps but the company took a massive perception and reputation hit in a category that is very new to most investors. It takes time. PR will not make much difference to the share price. It will be results and investment from institutional investors
and the current P/E is what? Not 10, that's for sure.
What baffles me is that this was £9 a year ago (post MW nonsense) and still hasn't recovered - despite continued bumper numbers AND a US listing. Is it just naff PR that means it hasn't got the institution's attention? Let's not forget that the Sovereign wealth fund bought in at £18
We all seem to be convinced that BUR is undervalued. But I do not think that using a multiple of Cash flow is a valid valuation method for a financial outfit like BUR. For that we should consider the accounting earnings of BUR. We know that the figures contain subjective elements, but the BOD have a history of being conservative with their estimates, so accounting earnings is the way to go. The historic P/E ratio is 10, but the prospective P/E is 15. The higher prospective P/E figure is due to BUR’s bumper first half 2019 dropping out of the calculation.
But the prospective P/E of 15 contains nothing for Petersen. That is like ignoring the elephant in the room. We know that the Argies settled with Repsol for $5bn. So it would be realistic to put a value for BUR’s interest in Petersen at say $2bn. Since the market value of BUR is already currently $2bn, arguably it should be double.
SO I am suggesting that the UK share price of BUR should be £15, and I am suggesting that this level should be achieved within 9 months, to take in the decision on the case.
I've liked the one by Emily much more mature:
http://www.burfordcapital.com/insights/insights-container/video-ip-trends/
or http://player.vimeo.com/video/467342820
from here http://www.burfordcapital.com/insights/videos/
They've published new video yesterday, nothing serious or new tbh, regular gibberish in a basic introductory style but nonetheless someone might find it indulging just to see any activity there..
http://www.linkedin.com/posts/burford-capital_download-the-2020-legal-finance-report-activity-6724972378641764352--oMF
IMO - the one from 3 days ago by their CEO (at NYSE listing day) was a bit better, although of a same level containing just bare minimum insight.
http://www.linkedin.com/posts/christopher-bogart-b3114411_burford-capital-on-the-nyse-a-new-era-for-activity-6723984221737664512-zWY7
Majority of stocks are undervalued across all international markets including US,
there's significant fraction of good-performing companies (staying in profits even during these stressed times)
valued half of what it would be under normal conditions.
Bur is above these levels (and considering it's not really part of any major prime-index)
Therefore it's a bit strange to expect it to be valued fairly at times when private capital tends to take risk-averse position by staying away from equity markets (capital outflow) and some sectors of commercial debt market (which in part is substituted by central bank interventions / support measures).
Strangely - there's range of top-tier companies with abnormal (over-)valuations up to a levels where their profits will never be in at least over an observable decade.. (P/E even considering growth prospects in a sustainable way, some pharma sector tickers are priced like these temporarily spiked profit levels will stay forever plus some growth priced in.. lol), range of ghost companies (negative net equity, etc.) which won't survive this are still priced like they have no fundamental problems or eminent liquidity issues.. crazy world, mad times.
IMO - best thing to do right now might be to follow classic recommendation of forgetting about stock positions for at least a year (aka patience).
very hard not to be disappointed..
Like u said Flakey
“They’ll wake up in the end”
maybe the Americans are like us......buy high and sell low lol
It is disappointing, and surprising, that the price is now below the point at which it was dual listed.
The market always seems counter intuitive. I bought & sold Novacyt several times because to me it looked the most likely success story in the pharma world. I timed it badly & lost a few grand. However I more than made it up on Avacta despite believing it more of a risk. I think the point I am making is do have patience, Novacyt sat between £2.50 & £3.50 for ages, now look at it. Burford will come good, I was convinced the US listing would catapult the SP & believe still that it will just a matter of when. Probably when we least expect it.
well I hope so. I've been a holder since 2014 have bought consistently between £4-18 - as such, now underwater (although almost break-even). I have no idea how long this value will take to trickle through the US markets, but I was expecting some immediate jumps given the crazy-low PE and the years of demonstrable growth. It's a fantastic company, it's just bewildering why the markets haven't snapped it up.
Patience will reward the Brave.
Keep the Faith and you will be rewarded.......this is a slow burner and it will take time to hit the radar screens across in the US.
what's it going to take to get the re-rate going though? Half year results didn't, US listing hasn't, and the SP was higher this time last year whilst still clawing back from the nonsense MW attack. I'm with you - it should be 2 or 3 times the current price. But as someone still at an overall loss from the short attack, despite heavy buys since March, I'm losing patience...
I confess that I am also a total sucker for BUR. Even got into overdraft buying more shares. Natural caution prevents me from entirely agreeing with the blue sky numbers that you are generating, still the present low valuation of BUR seems extreme. The disastrous MW episode still gets a mention from lazy journalists every time they report on BUR, and the erratic earnings profile is off-putting for some mainstream investors. For myself, I shall keep buying even if it means that I have to beg, borrow and steal. (OK, not the last one).
I cannot see why this not trade for minimum 20 x cash flow. For a leader in the industry with a huge runway ahead of it , 20x should be an absolute minimum. That gives an valuation today of at least $10 billion dollars or $50 per share. 2023 target $100 per share. These are not extreme valuations at all. My new personal obsession is accumulating as many bur shares that I can. Lol help