BigBaggerHungry, if they uphold their stunning growth in net profits at the current rate, this would take about 4 years, provided sentiment remains this low. It is not uncommon for businesses growing at this rate to eventually trade at much higher valuations.
Time will tell.
I would not mind another dip to 350p tbh.
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
SLP trades at such large discount to (my estimated) intrinsic value, that I won't lose sleep over whether the purchase price is 55, 60 or 70 p even.
It's rather interesting to see that this company is neglected by the institutions.
Meanwhile I'll profit from building a position at discounted prices, hoping that the SP remains low for quite some time.
"The stock market is the only market where participants complain when prices fall"
Mathurin, yes. It still looks like an attractive proposition. With their expertise they can make rather good bets on lucrative cases with a 30% margin.
Being a rather novel approach to litigation, the accounting is often mis-understood, ergo the recend disturbances.
This often leads to mis-pricing and sadly, a lot of egg on the face of people claiming fraudulent activity.
For those who are willing to dig deeper into the fundamentals, this is a great opportunity though. A share in this business is still above 50% discount to intrinsic value (for those who bother). Arguably, it was overpriced at peak levels, but recently it dropped way to far.
I would expect it to take a bit of time for market participants to understand how their business works. Even if some high profile cases wouldn't work out, the proposition is still rather attractive. For a very handsome return they can make rather educated evaluations as to how to deploy capital for a market beating return.
My biggest concern with this company would therefore be the staffing risk. It is highly reliant on the competence of a few. Replacing key participants in the process requires rather careful thought. Staff risk is therefore one of the key points to monitor. Without that expertise the business could land in troubled water rather swiftly. This is not an imminent concern but something to keep in mind.
Eventually, the share price will find it's just level. In the meantime, the depressed price is a welcome opportunity for those seeking to build a substantial position.
Here are the relevant sources
https://www.glassdoor.co.uk/Reviews/THG-hut-group-Reviews-EI_IE802179.0,3_KH4,13.htm
https://uk.trustpilot.com/review/thehutgroup.com
https://www.msn.com/en-gb/news/uknews/hut-group-cancelled-2011-flotation-after-multimillion-pound-fraud-was-uncovered/ar-BB18Iwud
Claiming a company founded in 2004 a startup is stretching it a bit...
The end indeed.
I'm afraid it won't.
Having looked at the company pre-IPO, it sports a rather aggressive culture in a toxic atmosphere, pitting employees against each other. Given this awful work environment, it is not surprising that a previous attempt to float in 2011 due to fraud allegations, leading to high profile resignations (I am surprised nobody went to jail for this). When you read the sequence of events, bribery is also something that comes to mind rapidly.
Customer service is abysmal. Have a look at it's Trustpilot rating. In retail, poor customer service will erode a customer bases rather quickly.
Most of their other brands don't turn a profit either. Myprotein is what keeps this business afloat.
On the technical aspects the performance is wanting. Their technology is largely unreliable and plagued with defects.
None of this suggests that they have the competence to become the next Amazon. The next Enron more likely.
> No US listing or YPF win - £11 Min.
Yep. That's the model I used. It assumes a growth rate in step with the NOS average rate of inflation and a 50% margin of error. I would quite appreciate sentiment remaining low for a while in order to expand that position further ;)
Not sure why everyone wants the price to go up. For as long as it remains underrated it is a rather good proposition.
Patience.
Eventually that Woodford bashing -- which looks increasingly cheap -- will stop. Then it's back to the fundamentals of the business. Current price indicates a 1-2% growth together with a 50% margin of safety.
One has to make the call as to whom to agree with.
Burford is at to top of the pile in litigation finance and is taking on bets few are able to take on. The risk I can see thus far is that there is a capacity risk should key members of staff leave. As far as being able to make a 30% roi on cases which are more or less concluded not being a good proposition? Be my guest.
Although I can see the potential of this rather novel sector in finance, patience is what I'm afraid will be necessary.
Criticism, even when unjustified, requires a track record to rebute it. And criticism there was plenty.
Not that I would not welcome it, it is essential. But it will take time for a level of confidence to establish itself. To the enterprising investor, this can indeed provide a welcome opportunity to build a substantial position (alas, not without risk -- novel implies this).
A shift in how this business is seen will require some consistency in results. These don't come lighthanded, they will need time time to establish.
From my experience, innovators are always scrutinized and attacked. And that's a necessary gauntlet they need to muster. Look at Steve Jobs and you have plenty of precedence.
I would be (positively) surprised if perception would suddenly evaluate their proposition correctly. A time frame of 3 years is something I am expecting.
It depends on ones views as to the prospects and future of Burfords approach. Taking into account the relative immaturity of this industry, further disruptions are likely (risk).
I'm afraid this is a position that needs rather close monitoring and investment of time to understand it. In the short term I would not be so up beat about favourable assessments. In the long term I would expect a rather solid business emerging.
There are a lot of complications when moving to SEC regulated territories. A lot of the regulations as towards independence of audiors are a lot tighther. This could involve moving to a different auditor all toghether. Do not underestimate this complication.
Arguably, the paperwork can be done within weeks. But that's assuming that all the other boxes are ticked. They never are and the current delays we face across all industry sectors don't help as far as timing is concerned.
Patience.
Meanwhile, let the management run the company and work towards establishing these claims as an asset class. Very novel and thus by default, speculative. I can see the upside and the beneifits and am prepared to give it it's time.
Are you?
No position as of yet. It's high on my list though. I do like a lot of the fundamentals and the fact that the CEO is paid modestly. Liquidity in this security isn't great though (ie volume). That wouldn't stop me taking a position, but it's a consideration. Entry points are never well timed (when they are, it's luck). As long as I can see it trading below fair value and with a healthy margin of error accounted for, then it's a buy regardless of what I may think about optimal entry points. For what it's worth, it takes me about 6 months to actually pull the trigger.
One needs to support a company (i.e. purchase stock) for the right reasons. Failing that one is at the whim of market calamities.
Litigation finance is a rather novel aspect in the leagal world. The muddy waters are as to whether the claims are truly an asset class or fantasy. The jury (pun intendet) is still out on that one.
So there will be a lot of adjustments necessary to have claims recognised as an asset class. Asset class would imply some intrinsic value and Burford, amongst others, argue this case. Alas, this is yet to be established. Thus such enterprises remain in the speculative domain and this is why there exists such a broad range of opinions thereof.
Every stakeholder should apply critical thought as to the future of this business and understand its speculative nature and balance their portfolios accordingly.
For what it's worth, my estimates indicated that any dip below my estimates below intrinsic value indicates a good opportunity to purchase a good business at a discounted value. Whether you agree with that or not, is ultimately ones own responsibility.
As to the prospects of share price (I don't intend to liquidate for as long as I can see favourable criteria being met), I would expect quite some volatiliy as to how to this intrinsic value is perceived.
l am long BUR but I would caution patience towards the realisation towards the value their portfolio and business prospects.
I would expect their reliability to remain in the speculative domain and it should definitively be treated as such. Over time it should tell whether litigation finance will become a reliable asset class or not.
Until then, expect lumpy results and strong sentiment.
No luck to anyone. Use your head.
On my part I quite like the fact that they focus on establishing this rather novel industry of litigation finance. It is not everybody's cup of tea. Companies with such a short track record are in the enterprising pile, which means my maximum allocation is 10% in my portfolio.
For my part, I don't think that their business model is broken. Litigation finance is here to stay and law will hopefully stay as well.
However, I don't mind listening to the bear case since it always provides for an interesting point where one can reflect further. Its a great opportunity to learn more about the business.
I do however, wonder why so many people went in at such lofty premiums. Even a very simple valuation on the "back of a fagpacket" would have prevented a lot of upset.
If management would be able to control the share price, then they would be guilty of market manipulation. Let that sink in.
I can fully understand why some would never take a position in Burford. That's perfectly OK. What is not acceptable is if I would accuse them of being fake and a fraud, simply because they disagree with my opinion.
For some it's time to man up and admit that they made a mistake and had no idea what they were doing. That happens. But it does not give anyone a "carte blanche" to abuse others.
Try this
https://associationoflitigationfunders.com/litigation-finance/
Look at the members directory. This (new) industry needs regulation to calm things down. So they are pushing for this.
There will be plenty of opportunity. Provided we don't face loss of principal, BUR are set for a slow recovery. It will take a series of results for confidence to return and the company to be noticed. In the meantime, let's enjoy the 'value compression'.
Like previously mentioned in the 'private' thread. This climate will present a lot of interesting opportunities for expanding BURs portfolio.
I would not expect a substantial change within three years time. It could however, literally explode upwards. Unfortunately, these things are impossible to time.
Time will tell...