Meat & Potatoes4 Feb 2024 14:27
Latest Greenhaven Investor Report
Burford (BUR) - The litigation finance company is by definition "playing the long game" as their average case takes almost three years from funding to resolution, but many take significantly longer. As a result, earnings in three years really are being driven by the investments being made today. The two senior managers of Burford each own more than $100M worth of stock. They are building an asset management business. Two of management's priorities with long-term implications are to continue to build out both their data science infrastructure - Burford believes that they have the best proprietary data on legal settlements, which improves their case underwriting and thus long-term returns - and their customer base.
Historically, the "deal pipeline" of cases came from law firms looking to get their legal work paid for by Burford so that clients were more likely to pursue their cases. Increasingly, large companies are coming to Burford with cases as a case financed by Burford allows management to pursue a case without hurting current year earnings and their current year bonuses. Burford is currently working with 2 Fortune 50 companies. Working directly with corporates is going to be important for continuing to grow the litigation financing business.
Like the rest of Burford's investor base, I am paying attention to their Argentina YPF case because - if and when they can collect their judgement - the potential proceeds exceed the market capitalization of the company. The developments with the new Argentinian president are incrementally positive for Burford. We are also tracking several other material cases, including Sysco, and any indications of continued progress on the corporate front. As discussed in our investor presentation (to investors only) that accompanied our last letter, Burford's business is one where power laws can come into play. In general, they earn good returns on average for "meat and potatoes" type cases but have the potential to earn incredible returns on a smaller basket of cases which can have outsized impacts on business valuation.
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