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Some of my notes from the call for anyone that missed it:
Overall next few years likely to be busy with the Covid fallout. Echos comments from the NY Times article that corporate clients with existing litigation finding themselves liquidity contrained along with interest over breach of contract cases and insurance cases.
Sovereign immunity claim was biggest risk in Peterson and that stage now over. Timeframe for second phase could still run into years if goes full length but possible 9% interest back payable to 2012 for any judgement award.
Potential of being taken private is entirely a matter for shareholders and not a management question.
Before submit US listing application, auditors need to convert accounts to PCAOB form and slower than should be due to Covid. However, are "getting close" to being able to submit.
Dual listing will operate transparently; when a broker receives an order will be able to fill it either in NY or London as sees fit.
Believes there is significant untapped demand from US investment funds that are currently prohibited from buying them in London.
US listing would leave him liable to criminal prosecution in the US if there was any truth in MW allegations so hopes helps remove any final lingering doubts.
Overall, sympathised with those of us that still have shares from the mid-teens but says best way to solid long term SP recovery is patiently allowing the company to show its worth. He did however note that the US market's fondness for valuing companies on higher multiples than the UK market tends to shouldn't hurt in the nearer term!
You want out? The US listing might give a little boost to the share price but it's nothing compared to what good strong gains going forward would do for it. Hopefully there's huge value in the portfolio and that will only become properly clear in a few years. I think patience is what's needed here unless you're just looking for a quick profit from a rise of a few percent.
No problem. In my heart I'm debt adverse after a couple of companies I went for when I first started blew up on that very point. However, the maths is the maths and it does make sense in BUR's case as long as it's at levels that don't mean unwarrented risk.
The last year has been hard for us all here. Luckily I had some spare funds to top up but I'm at a point where adding much more gives me an uncomforably large position. That's why I sometimes disappear off the forums for extended periods - I have alerts set for rises or falls that I might want to know about and then sleep better without watching the price day to day!
GG, TB and FFC:
Personally I agree with GG but I understand where TB is coming from.
Key factor when making comparisons: BUR is a finance company and so comparing to other sectors doesn't really make sense. To use the Buffet example that's been raised, Kraft may well have no debt (haven't checked) but the banks and other finance companies that BUffet invests in very definitely do (or their own version of it in his insurance companies). The very business of finance companies is to borrow at a lower rate and lend/invest it at a higher (expected) rate.
If you had a 10bn windfall today you'd obviously be unlikely to re-finance any bonds due tomorrow. However, you might still in the longer term if you invested that money *and still had good investments available to make*. Then you'd borrow more to finance those extra investments.
That's all it comes down to and in my view the key to finding the middle ground in this ongoing discussion! If you can make a suitable return on the money over and above the cost you borrow if for (factoring in risk, etc, into the equation), you borrow it. Simple. That's the point GG and I have been trying to make.
However, if you have your own money sitting idle you'd obviously use that first (which coincides with TBs point and aligns with FFCs wishes?).
Therefore, BUR will/should always borrow (prudently) if it can make a good return on that money. If it can't, it won't (and that's when we should be worried because the market is sauturated and growth stops).
Nothing wrong at all to hope that the company will have sufficient funds to pay back the bonds eventually but when they're cheap relative to the investments that can be made, there's zero point.
Remember that the Sovereign Wealth fund takes a huge percentage of the profits there - far better to use bond debt over that type of finance, but it serves a purpose in the current situation.
I'd say that calling when they might reduce debt is pretty impossible - when there aren't enough options available to use the money for a good return is the fundamental answer. I wouldn't wish for that day too soon - it might mean potential in the industry has dried up and room to grow further has gone!
Debt falling relative to own assets is possibly a more realistic thing to expect to happen.
Buybacks almost definitely won't happen anytime soon - it's been discussed many times.
Why do you want the bonds to settle? If there are investments that mean you can make a decent return in excess of your borrowing costs, you borrow (within prudent risk limits). That's basic finance.
BUR's strategy is to grow in what's a relatively new industry and that requires money for additional investment. In that scenario the last thing they'll be doing is paying back the bonds, in fact they've signalled intent to issue MORE.
There are other funding sources available (such as the sovereign wealth fund) but those are considerably more expensive. BUR makes far more from balance sheet investments than it does from those investments.
If you want them to pay back the bonds, essentially you don't agree with one of the fundamental company strategies that's been stressed time and time again.
If I recall correctly from one of the investor calls, one of the main reason given for the US listing was to give access to the (much bigger) US debt markets - they think that will reduce the overall cost of borrowing, more easily take debt in the currency they actually use, etc.
They already disclose far more than they need to by AIM rules. They've said they won't delist from AIM. They've said if they don't get the US listing they'll do a main market UK listing. They chose the US option for a variety of reasons including to open up options for more investors whose rules don't allow overseas investments, etc, etc, etc. It's all in the RNS releases, reports or investor calls if you go through them.
I disagree that shareholders would have accepted that. Issuing shares at a time where the share price is artificially depressed is a terrible idea for existing shareholders, especially those who bought at four times or more the current price and might not be in a position to buy more. Buybacks would make far more sense in the current situation (if capital couldn't be employed more usefully within the business and help growth, which management repeatedly say that it can). Burford's gearing is relatively low and expected returns seem greater than the cost of borrowing, therefore issuing extra bonds makes sense. However, anything you can do to reduce the cost of your borrowing also makes sense.
Yeah, it definitely came up in the US in late 2018 or early 2019. It got voted down then I think some local senators tried to bring it in locally. I remember it being discussed at a presentation of other too - think Bogart flipped it round to say that it wasn't all negative as it added a barrier to entry and could potentially give an advantage to bigger players.
The bond purchased initially surprised me. However, I guess it makes sense. By the CEO and CIO having around $1m of their own personal money in bonds you could argue that the risk of default may be perceived at a notch lower. They're very likely to be tapping the bond markets relatively soon and so you can see the logic if viewed in that way.
From my own reading of the figures, fair value for Peterson should be on the conservative side. The main black hole there is who the secondary market sales have been made to and under what terms (as MW played on recently) but even a quick look at BUR RNS releases gives a degree of clarity here. Furthermore, there are actually hard figures to base the claims on unlike in many litigations (share price when nationalisation announced/made, the settlement already made with Repsol, etc, etc). I don't really think BUR needs to disclose further, just get on winning cases. Further disclosures are only likely to produce spikes that long term shareholders get no value from at all. Final case outcomes is what delivers long term value - I personally think we should just let them get on with that.
I'd far rather BURF spent time generating actual value in the company than engaging in activity that is likely only to produce temporary spikes in the price. Who wants short term spectulators entering on snippits of information and then exiting on the next wave of panic? Thankfully a lot of BURFs focus does seem to be on attracting (and serving the interests of) those in this for the long term. That's where stability in the SP will actually come from.
I'm personally extremely happy to keep buying more at these crazy low prices for as long as possible. As long as in a couple of years results have driven the price back to where it should be, we'll all be very happy. The only present a BURF shareholder needs for Christmas is patience.
Burford's quite a unique situation given that Woodford was such a large shareholder - that's what attracted MW and the spector of those sales has kept people nervous. When people (mistakenly) thought Link had sold Woodford's holding, Burford did start rising quite significantly.
CJ66, BURF is notoriously hard to value (although most people that have had a serious and objective look agree that it's currently heavily discounted) and so I'm sure we'd all love to see a summary of the calculations that you did to get to your £10-12 valuation please. I'm interested what you know that others don't?