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From the Burford Capital press release dated 6 September 2022:
"As Burford looks to complete its transition to a full US SEC-registered issuer and position itself more prominently with US investors, Mr Licht brings deep US capital markets and investor experience,’ the company said. Chief Executive Officer Christopher Bogart said: ‘Jordan brings an impressive combination of deep finance, market and strategic skills to continue elevating Burford's finance function, and we are excited to have him join the senior management team as Ken's successor.’
Clearly too much excitement not enough depth.
AceofClubs
180p is a p/e of 7.2 - IGG available at 6. No reason to get involved above 150p.
AceofClubs
https://www.reuters.com/markets/fitch-downgrades-argentinas-sovereign-credit-rating-c-2023-03-24/
Sysco, a somnolent Judge Preska, delayed accounts, these would appear to be the least of Burford's problems.
AceofClubs
Hello asp1,
My understanding of why DEC hedge their output and their business model is basically the same as yours. However, does the business model demand the extent of commodity hedging that DEC indulges in? I think not. I can believe that management have painted themselves into a corner with their bondholders and agreed to undertakings that are very, very favourable to bondholders. These terms have the potential to do serious damage to equity holders as is evidenced by the 2021 and 2022 accounts.
Your example on the commodity hedging is incorrect. There is no loss booked in the P&L if the spot price is above the hedged price. The loss is purely an "opprtunity cost", painful as it is to this investor on the scale suffered by DEC. I cannot believe that DEC set out with any intention to incur these "opportunity costs" but they have been forced into them by their obligations to bondholders?
You state that this business model requires a high degree of financial capability. Having built up such enormous realised and potential financial derivative losses DEC have demonstrated financial ineptitude.
The realised and potential losses in the commodity hedges are probably the result of onerous obligations to bondholders. The potential financial derivative losses worry me far more, are not intentional, and are even larger than the company borrowings. DEC ended 2022 with a total deficit on its balance sheet.
DEC has surfed the wave of a commodity boom in natural gas; as all surfers know - waves peter out.
AceofClubs
"AoC, you make this point repeatedly. "
“Those who cannot remember the past are condemned to repeat it."
DEC pays such a high % dividend because the market demands an extravagent premium to hold its equity. That is not an expression of market confidence in future financial or managerial performance. Those with the confidence to buy have enjoyed great opportunity and will be pleased: just be aware of what you are buying into.
The dividends paid in 2022 is on P131 of the Annual Report - any error is that of the company.
Market capitalisation will vary daily with the share price: I chose a round number purely for comparison purposes.
AceofClubs
The DEC Annual Report is 191 pages of words and numbers and Rusty has subsequently added quite a few more. I find the numbers more informative than the words so I will share a few that caught my attention. All numbers are (000’s).
Context.
In 2022 shareholders were paid gross $143,455 in dividends. It is dividends that holders seem to focus on as a sign of great success, so always have this number in mind when considering the others.
Comprehensive Income Statement (Page 128).
Losses at DEC grew from $325,509 to $625,410 in 2022. Revenue grew by 90.5%., losses by 92.1%. Shareholders ended 2022 with a much larger business declaring much larger losses. Why so?
Commodity Price Hedging (Page 48).
In 2021 commodity price hedging cost DEC $320,656 in opportunity cost revenue that was generated for the benefit of the hedging counter-parties. In 2022 DEC expanded this opportunity cost to $895,802 (do compare that to the dividends paid!) These numbers are not some theoretical book-keeping entry; they represent the cash that ended up in somebody else’s pocket in 2021 and 2022.
Financial Instrument Hedging
The Comprehensive Income Statement informs us that the potential cost to DEC of their financial instrument hedging increased by $1,758,693 in 2022 – in the context of a company with a market capitalisation of $1,100,000. Financial derivatives now sit in the Balance Sheet (Page 129) as a potential $1,471,641 liability of which $293,840 is current.
All theoretical you may think. The Cash Flows Statement (Page 131) tells us otherwise.
In 2022 DEC paid, in cash, $133,573 to modify commodity hedges and $105,316 to modify financial hedges: total $238,889 (dividends paid $143,455).
In 2023 the commodity hedges will almost certainly recover some of the losses of the past two years. The financial hedges, a complete mish-mash of Swaps, Basis Swaps, Put Options, Call Options, Swaptions, and various other offsetting transactions are more potentially damaging in 2023. I am rather perplexed that these hedging liabilities continue to grow in a rising interest rate environment. What were they hedging against? Lower interest rates?
The opportunity and cash costs of the hedging policies in 2021 & 2022 dwarf any return to shareholders.
I remain invested for 2023 but cannot see beyond that.
AceofClubs
Missing from the market at the moment is confidence. Banking is a confidence trick; stop believing and it doesn't work anymore. The major US banks have stepped in to save First Republic but the market is worried they no longer have the firepower left to save another significant collapse. The Fed will be doing all it can to restore order but once the withdrawals start nobody wants to be at the back of the queue. Can the banks recycle the withdrawals quickly enough to restore confidence? There are an awful lot of banks in the US, many surprisingly small.
Crypto, of any flavour, is the biggest confidence trick of all.
Cash is king in this scenario, just like in all the others.
AceofClubs
Burford Capital was listed on NYSE in October 2020. Did they think that Mrs Bogart's kitchen table "valuation" of cases in progress would be acceptable to the SEC? The current person holding the job title of CFO, Jordan Licht, has a track record that should make him unemployable in a listed company and would be extremely beholding to anybody prepared to employ him.
The only profit this business has ever declared is as the result of valuations attributed by Mrs Bogart. The two CFO's appointed after Muddy Waters have had all the authority of glove puppets. What have all those expensive, experienced, knowledgeable, "independent directors" been doing?
Wholesale reform needed if there is a viable business to be salvaged here.
AceofClubs
"tastytrade total revenue for Q3 FY23 YTD was £122.8 million up 50% (Q3 FY22 YTD: £81.8 million) or 36% on a pro forma basis. On a USD pro forma basis, tastytrade revenue was up 19%, with the benefit of interest income offsetting a softer trading revenue performance."
"US interest income was £32.7 million for Q3 YTD (Q3 FY22 YTD: £0.6 million)"
"Within exchange traded derivatives, tastytrade total revenue for the quarter of £44.9 million was up 57%, driven by a significant increase in interest income. On a USD basis, the growth rate was 42%"
They never spell it out but it is now apparent that IG paid 33% of its capitalisation for a "corner shop" business that has struggled up to ~£120m p.a. non-interest revenue, aided by a depreciating £. Profitability, or otherwise, is never mentioned so I have to assume we can fear the worst.
Cost control has been ignored in the "surge for growth" - which overall is non-existent. Shareholders would be better off if the directors were paid to just sit on their hands.
A basically solid business in desperate need of some sound leadership.
AceofClubs
"When markets decline AUM decline in tandem; it really doesn't take a degree to work that one out." Indeed it really doesn't Trotsky. However, it may take a degree to work out that it doesn't have to be like that.
Blackstone, also an asset management business, where I have a much larger holding, increased their AUM in 2022 from $880.9B to $975.0B - mere chance or good management? If you are prepared to accept decline when markets decline then you may as well buy an index fund.
It is now a well established practice for managements to adjust IFRS results, usually a loss, into a profit. Some are possibly justified but too many are blatant manipulation and deception. The point is that Phoenix results plod along, returns to shareholders gently decline and most holders sleep soundly at night, probably because of advancing years.
AceofClubs
Buried at the end of "2022 Financial Highlights":
Assets under management declined by 16.5% to £259B - not a good look for an asset management business, that purchased SunLife (£10B of assets) in the year.
"IFRS loss after tax of £(1,762)m reflects significant adverse investment variances due to the accounting volatility from our hedging approach and an accounting mismatch from our own pension schemes that have been subject to a buy-in"
How do you generate such a loss when as recently as December 2021 base rate was 0.25%? When hedging couldn't they work out in which direction interest rates were headed?
The much proclaimed surplus cash generation is only 0.55% of assets under management. It does pay a dividend, consistently declining in real terms, which is all most holders seem to aspire to. I have held for 10+ years hoping for a performance sea change or a takeover. Hope springs eternal - and one of those perpetual "too cheap to sell" holdings.
AceofClubs
All main players in the US are currently losing money and those losses will continue in 2023. At the moment the fight is all about buying market share: Flutter is winning that fight, particularly in the Sportsbook trade.
From your Irish Times link: "The annual report’s figures show that Flutter’s target for non-US earnings before interest and tax was £1.146 billion, while it actually achieved £1 billion. Had it hit the target the top executives’ 2022 pay would have been similar to the level received in 2021."
Note the reference to non-US earnings missing the target.
Just look at the numbers ashton: then decide which has been the best investment.
AceofClubs
Jatw; your outlook for JUST must depend on whether you are a believer or not. Rebuild the Balance Sheet? Take a look at the NAV per share over the past few years. Richardson was justifying the firesales with a "what if the housing market declined 10%"? The answer is; it might take 18 months to recover: but all those equity release holders were not going to die in 18 months! Others have lapped up the value and JUST holders are left with crumbs. The DB annuity market is far more risky than the equity release market in my opinion and the average equity release customer is older than most with a DB pension entitlement.
Pleased to be out, but a takeover would wrong foot me.
AceofClubs
Flutter (Fan Duel) is crushing BetMGM in the States. Fan Duel is extending its lead continuously and now looks untouchable.
MGM Resorts is now increasing its competition with Entain outside of the US - it just cannot make for harmonious relationships. I the past 5 years Flutter share price +84%, Entain +48%; in the past year Flutter +84%, Entain -5%.
Market capitalisation: Flutter $29.4M, Entain $9.7M - only one winner here and it isn't Entain.
My money's been on the wrong horse.
AceofClubs
A solid set of results with no obvious weakness. Still delivering value to shareholders - they can't be expected to break records every year. Management focused across the business and no bullsh*t or management speak. Worthy of continuing support.
AceofClubs
Richardson has trashed this business since taking the deputy CEO and then CEO role.
In Y/e 2017 JUST paid a 3.72p dividend and made a profit before tax of £181.3M.
The value in JUST has largely been sold to others at giveaway prices.
"Cumulatively since 2018, we have incurred a net loss of £226m (pre-tax) on interest rate hedging " - clowns, that should not be allowed to play with such dangerous products; they clearly do not understand the downside risks.
I bought in at 90p expecting realisation of value for shareholders - it has been squandered by the directors, not least on the directors.
I have exited at 90p, pleased to be out relatively unscathed.
AceofClubs
Hhaigh1 : You should appreciate the reply - it appears flippant (no pun intended) but it is just as likely to give you a winning result than any other "not advice" you will read on here. You will learn that with experience.
AceofClubs
Toss a coin.
Large tranfers of assets and liabilities stretching decades into the future are impossible to value or cost accurately. Acturies will tell you otherwise; but they are all dead or retired by the time their predictions are put to the test.
I am always sceptical with purely financial transactions where both parties declare it's profitable business. In transfers of funded Defined Benefit schemes there is yet another party with apparent cause to celebrate; the members of the scheme. Peter Jennings, head of DB sales at Just Group, added: “This was a textbook example of how stakeholders should collaborate to deliver a very efficient and well executed transaction to achieve excellent outcomes for the trustees and their members.” So it's win, win, win.
When reality bites (Equitable Life?) nobody, but nobody, is held to account.
Not a concern today and too far in the future for anybody to be too bothered, the constant flow of schemes into the "Pensions Lifeboat" costs only one party after all: the pension scheme members.
AceofClubs
"Berkshire Hathaway pays no dividend but has achieved a 20% compounded return for many decades."
The only true part of that statement that is the "no dividend" part - "the "20% compounded return for many decades" is an oft repeated fallacy. BH did return a stellar performance in an underinformed market decades ago. In a much better informed market BH total compounded return has failed to beat the S&P500 over the past 5,10 & 15 years (source Morningstar). Media portrayal of Warren Buffet as a liberal, avuncular, friend to all, is also an urban myth; a more rapacious individual would be hard to find.
AceofClubs