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Litigation finance addressable market is estimated at $50bn+

In the following section, we remind investors of how large the industry is likely to become. This opportunity is central to understanding the structural drivers of the equity story and helps put the returns achieved to date, as well as our forecasts, into context.
As Burford is a market leader and scale is a benefit, we expect that Burford's growth will be at least in line with the market and may even outgrow it. At the 2018 Capital Markets Event, Burford highlighted three key areas that can give an indication of total market size: 1) annual law firm fees, 2) the value of eventual settlements awarded and 3) the value of the assets affected by legal processes. We choose to focus on annual legal spend, as this gives a good indication of the value of investments Burford is able to commit in a year, which is central to our modelling.

IMF Bentham is an experienced litigation funder with particular strength in Australia. In IMF Bentham's FY18 results presentation, the company estimates the total addressable market for litigation finance to be $53bn (USD) annually. The chart below shows that the total estimated annual legal spend is $330bn, of which $110bn is spent on litigation. IMF Bentham believes $53bn of that could be funded by litigation funders annually.
To support this data point, we highlight the annual revenue of law firms focused on litigation. The chart below shows the total annual revenue of the global top 50 litigation firms, the Global Litigation 50 from “The Lawyer”. The total revenue derived from litigation income from these top 50 firms was $31bn in 2017. Given the annual litigation revenues of the smallest firm in this list was over $300m and the large number of legal firms not featured, annual litigation spend is likely to be in the region of $110bn globally, which backs up the IMF Bentham data point.

Currently, Burford manages $3.9bn on- and off-balance sheet, suggesting significant growth potential if the total addressable market is $53bn of annual spend.
The table below shows Liberum estimates for the largest firms providing litigation finance. Clearly, Burford is far larger than competitors; moreover, there are only five firms that manage over $500m. The total assets managed by these 15 businesses, which we believe are the largest, is c.$7.3bn. It is likely there are multiple smaller-scale firms not featured in our list, but we
believe it is unlikely that the current market size is much larger than $15bn. If the addressable market is $50bn in the US, Canada, Australia and the UK, as suggested by IMF Bentham, this industry has the ability to grow three-fold.

Investment thesis
Our view of Burford remains unchanged following a careful study of the recent MW report. We continue to believe that Burford offers investors the opportunity to gain exposure to the leader in the structural growth of litigation finance. The recent share price fall provides an attractive entry point, and effectively discounts the group delivering no future growth, and ROIC falling materially from the levels achieved since inception, even excluding Burford's biggest success, Petersen.
• It will outgrow an industry itself capable of growing threefold
• We estimate that the litigation finance industry could grow from $15bn to $50bn+. We expect Burford's balance sheet and third-party funds to grow to $5.8bn by 2022.
• You can see this ambition and ability in the recent equity raise and the sovereign wealth fund financing structure announced in December.
• Relationships with corporates and law firms will be a significant catalyst, increasing the wide range of potentially investible matters.
• Strong returns and growth uncorrelated to other risk assets.
• Operational excellence has resulted not only in high growth and returns but in enduring relationships with major global law firms that are the bedrock for future such returns.
• This is akin to a great small/midcap fundamental equity investor, with a small army of the brightest analysts, the best risk manager/CIO, and the best brand. The data Burford collects on historical cases helps the company to make better investment decisions.
• Risk: no control of returns in the short term. Any period could be considerably stronger or weaker than the market expects, since the company depends on court timetables and judicial outcomes.
• The stock is cheap because it discounts a level of returns that is far below what it has earned over both recent and more distant history and we see no structural reason why returns should fall
• The company has earned a 98% ROIC to date on completed investments, or 60% if you exclude partial realisations, but the share price now discounts an immediate fall in future returns to 26%.
• This is despite the fact that 1) the mix of its business has become more positively skewed to complex cases where returns are higher now and should remain higher in future and 2) the Sovereign Wealth Fund deal levers Burford’s return by 1.8x. Working in the other direction is capital allocation to lower ROIC but faster cash-cycling business lines.
• Our unchanged price target of £26 implies 283% upside. In contrast, the current share price effectively assumes that the company is in runoff.

Business model supported by other industry players
In order to extend our understanding of the litigation funding market, we have in recent months met a number of competitors, both listed and private. The key takeaway from these meetings is that other smaller quality peers see high
returns and growth. Burford’s concluded returns and growth rates are impressive but not inexplicable. Regarding the industry, “It’s a fabulous business” – as the MD of one competitor told us, citing that 94% of commercial claims settle before trial and 63.4% of claimants win at trial.

Following the Muddy Waters report, the rebuttal from the company and rapid response to investor concerns around corporate governance, our view of Burford has fundamentally not changed. We had always held the view that Burford had no funding issues, that the company had previously outlined its methodology of fair value accounting and calculates disclosed ROIC and IRR appropriately on a cash-on-cash basis. Before addressing our fundamental view on the equity from page 4, we summarise our views on the key points raised by Muddy Waters below, and provide detail from page 16.

Manipulating returns
The Muddy Waters examples of potentially manipulating returns are unfounded. The company has responded with clear explanations to all cases in which returns are said to have been manipulated, including the 2 September granular explanation of the Napo investment and its valuation.

Abuse of fair value accounting
Burford’s fair value accounting has been under intense scrutiny. Although we believe investors would appreciate further disclosure around the gross fair value write ups, we view the use of IFRS accounting as appropriate and are comforted by detailed discussion by the company of its write-up process and external validation from consultants and auditors.

Revenue concentration
We have most sympathy with the assertion that Burford’s revenue is skewed to a few large cases. If one were to remove Burford’s best four results and all non-cash realisations, Burford’s litigation finance returns would still be 33%.
Removing Burford’s best investments observation only has any utility if you believe that the business of litigation has changed such that Burford will never again make outsized returns. We have seen no evidence that this is the case.

Corporate governance concerns
Burford has announced several responses and corporate governance changes following the shorters’ criticisms, such as appointing a new CFO. They are material and have been made swiftly. These changes are as much as we had hoped for at this stage, and it is likely that further disclosure will be given to further ease concerns.

US listing a credible option
We believe that the company’s announcement to seek a second listing in the US is a credible one. We analyse the implications for corporate governance given the current NASDAQ requirements and believe that Burford is well
placed to meet these. We would welcome the increased scrutiny and investor interest that such a listing would bring.

Following the recent short attack and share price fall, we outline our continued confidence in Burford. The bearish commentary has raised a number of questions, but these have been sufficiently answered by the company, in our
view. The rapid response to improve corporate governance has been welcomed, and should repair investor confidence
over time and lead to a re-rating. We make no changes to our forecasts or TP of £26 and reiterate BUY.

MW report largely inaccurate
The Muddy Waters (MW) report is largely unfounded. We detail here how the company has responded
with clear explanations to all the allegations of manipulation of returns.

Governance improved
The corporate governance changes announced, such as the new CFO and board members, are as much as we had hoped for at this stage, and further disclosure seems likely.

Run off valuation support
We show a valuation of the business in run-off. This is in no way our expectation, but it highlights that even with no new investments, the business is supported at 821p.

DCF TP of 2600p unchanged
We continue to use a DCF to derive our TP, as the business has variable annual returns. We give a sensitivity
analysis based on ROIC and growth inputs.

29 page Liberium report out today. TP of £26.

I wouldn’t worry about hl selling. This share will always be up and down due to the nature of sporadic selling of the games. It’s been a quiet time for fdev but that will change as new games get released.
It certainly looks like Planet Zoo will be massive and bigger than expectations.
The results due, well they will probably be average, but it doesn’t matter if new releases will beat expectations.
It’s still a young company and growing.

Certainly moves on low volume.

H1 19 results were slightly ahead and showed further evidence of margin progression. The divisional margin increased from 3.5% in H1 18 to 4.0%. FD EPS decreased by 7.4% to 15.1p, but was 13.7% ahead of Liberum estimates. We have made no change to our FY19 earnings estimates, but spot net cash has been reduced by £15m to £61m due to w/c and average net cash has been reduced by £10m to £45m. We estimate that the cancellation of HS2 could reduce FY20 FD EPS by 27%, but there are plenty of opportunities on AMP7 and CP6. BUY and TP 350p.

Interims ahead p18 »
• Divisional margins increased from 3.5% in H1 18 to 4.0%.
• EBIT fell 8.6% vs H1 18 to £21.3m, but 10.0% ahead of Lib.
• Av net cash from £77m to £64m.

Earnings unchanged p4 »
• No change to headline earnings estimates; we continue to expect
FY19 EBIT of £39.9m, EPS 27.4p.
• Spot net cash reduced £15m to £61m, av cash by £10m to £45m.

Strong order book p12 »
• Order book flat at FY18 level of £4.2bn, but £1.1bn of work won in H1 to replace M4 cancellation.
• HS2 review finalised by year-end.
• Opportunities on AMP7 & CP6.

Cheap vs all peers p23 »
• CY20 P/E of 4.7x, or 6.5x assuming HS2 cancelled.
• Cheap against all peer groups, particularly on an EV/EBIT basis.
• P/E of 2.5x target EPS of c.60p.

That is for full year. 3.8p coming up next week and the previous dividend was 10p. So, 13.8p for full year makes it worth a hold at least.

Well I took a little nibble here today. At this price the full year dividend works out just below 10%. Obviously there are the risks, Brexit and HS2 but the company won't go bust in the worst case scenario, so worth a punt at this price with intention of adding possible on further drops.

Which ever you may have voted for or even want now, The best thing everyone in this country could do is to start buying locally and only buying British when you can.
Do we really need tasteless Strawberries at Christmas or sliced chicken sandwich meat that ASDA have sold from Thailand?
British people need to take a leaf from the french people and start to be loyal to their own country.

Not looking great for this share now with the BOD selling £362k and now an ii reducing their holding. The price hovering around the broker target, RSI high and STOCK over bought.

I wondered at 120p, but think this will linger low for a long time now.

With the news of Planet Zoo expecting to exceed previous estimates, the end of the quiet summer months and the STOCH being over sold, hitting support, hopefully we will see the share price work its way to 1400p+ and eventually onto the broker target of 1800p

Illiquid share makes it like dominoes, when a large sell goes through it creates a knock on affect of others selling quite often with stop losses taken out.

It doesn't matter what the company says, all the market will be interested in is, "will it make a profit".

My alert has triggered for 27p which is support.
The problem with XPD is the low margins. For a company with 200m revenues it only produces 4m net profit. So when a profits warning happens it will often become loss making.
I quite like this company though, and the stats are very sound. It's a good idea too to do upgrades now to increase the profit margins.
Whether it bounces from this support or just lingers at this level or drops a little lower who really knows, but I'd guess the sp will not do much until we see more figures from the next results and then possible a wait until XPD becomes profit making again. There can not be too much downside from here with NAV at 21p but it looks like it is a share to hold for at least a year or longer.

Got to say I do miss wassers. I always checked in here early and knew he was around. Life can be so cruel but I'm sure he would not want us to mope about but to get on and enjoy life, remember him and smile knowing we had the privilege to have known such a wonderful person.

My guess is BT will go to 130p before turning around the downward trend.

Hey zanmantate, hope your enjoying your bank holiday.

http://www.chartupload.com/viewer.php?file=35977713163104290332.png

There's only minor support and resistance levels to be honest. 20p being the obvious level to buy in otherwise if it drops further add at 16p or just above.
As the chart shows, 24p will be the real meaningful resistance to break. With the strong rise in 2 days it was obviously too strong to break that resistance which coincided with the top of the downward trend channel.
I'm hoping it will now consolidate, bringing STOCH and RSI to resemble levels while maintaining it's position above 20p and the 50EMA. This would be a nice base to push through that 24p resistance and hopefully give me a chance to load up a bit more.
The fundamentals are pretty strong so any buying at these levels will deliver a good profit in the future. It's not the easiest to guess if it will drop further or rise again imo. All i'm doing is holding and will add on drops if I can.