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  • FIRST POST
    • tin586
    • By tin586 7th Aug 19, 9:35 PM
    • 92Posts
    • 54Thanks
    tin586
    Burford Capital
    • #1
    • 7th Aug 19, 9:35 PM
    Burford Capital 7th Aug 19 at 9:35 PM
    “On Wednesday the shares lost more than half of their value after Muddy Waters published a note casting doubt on the company’s seemingly stellar performance. Almost 2 billion pounds ($2.4 billion) of investor wealth has gone up in smoke since rumors of the short-selling firm’s interest first emerged on Tuesday.”
    - Bloomberg
    (other news sources are available)

    Anyone own shares?
    Any views?

    I can’t think of anything else but to hold on.
Page 1
    • Moe The Bartender
    • By Moe The Bartender 7th Aug 19, 9:41 PM
    • 601 Posts
    • 1,659 Thanks
    Moe The Bartender
    • #2
    • 7th Aug 19, 9:41 PM
    • #2
    • 7th Aug 19, 9:41 PM
    Anyone in Woodford or HL's own funds has an interest.
    Hey, don't you badmouth this country. Compared to the rest of the third-world, we're doing great.
    • itwasntme001
    • By itwasntme001 7th Aug 19, 9:48 PM
    • 449 Posts
    • 194 Thanks
    itwasntme001
    • #3
    • 7th Aug 19, 9:48 PM
    • #3
    • 7th Aug 19, 9:48 PM
    LOL Woodford seems to have picked the worse of the worse stocks!! At least his name is tainted forever, he wont be managing anyone's money ever again
    • SonOf
    • By SonOf 7th Aug 19, 9:51 PM
    • 1,883 Posts
    • 2,140 Thanks
    SonOf
    • #4
    • 7th Aug 19, 9:51 PM
    • #4
    • 7th Aug 19, 9:51 PM
    professional investors know the contents of Woodford's fund and they are punishing him in the fire sale.
    • JohnRo
    • By JohnRo 7th Aug 19, 11:28 PM
    • 2,795 Posts
    • 2,642 Thanks
    JohnRo
    • #5
    • 7th Aug 19, 11:28 PM
    • #5
    • 7th Aug 19, 11:28 PM
    professional investors know the contents of Woodford's fund and they are punishing him in the fire sale.
    Originally posted by SonOf
    ..and it's Woodford's long suffering investors that are going to have to pick up his tab.
    'We don't need to be smarter than the rest; we need to be more disciplined than the rest.' - WB
    • AnotherJoe
    • By AnotherJoe 8th Aug 19, 7:18 AM
    • 16,363 Posts
    • 19,666 Thanks
    AnotherJoe
    • #6
    • 8th Aug 19, 7:18 AM
    • #6
    • 8th Aug 19, 7:18 AM
    “On Wednesday the shares lost more than half of their value after Muddy Waters published a note casting doubt on the company’s seemingly stellar performance. Almost 2 billion pounds ($2.4 billion) of investor wealth has gone up in smoke since rumors of the short-selling firm’s interest first emerged on Tuesday.”
    - Bloomberg
    (other news sources are available)

    Anyone own shares?
    Any views?

    I can’t think of anything else but to hold on.
    Originally posted by tin586
    What about selling and buying something else?


    p.s. Just been reading the MW report. I'd get out of Burford right now. Unless they are lying about the facts, Burford's numbers are based on a pack of accounting shenanigans that are reminiscent of Enron.

    Well worth reading.
    Last edited by AnotherJoe; 08-08-2019 at 7:59 AM.
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
    • jaybeetoo
    • By jaybeetoo 8th Aug 19, 8:22 AM
    • 1,084 Posts
    • 611 Thanks
    jaybeetoo
    • #7
    • 8th Aug 19, 8:22 AM
    • #7
    • 8th Aug 19, 8:22 AM
    Woodford has lost £120m because of this.
    • AnotherJoe
    • By AnotherJoe 8th Aug 19, 8:50 AM
    • 16,363 Posts
    • 19,666 Thanks
    AnotherJoe
    • #8
    • 8th Aug 19, 8:50 AM
    • #8
    • 8th Aug 19, 8:50 AM
    Woodford has lost £120m because of this.
    Originally posted by jaybeetoo
    Even worse for NW it makes opening the gate on Equity Income even more unlikely and it must have raised the % of unlisted assets higher pushing back the day they can reopen even further.
    They really need to take it round the back of the woodshed with a shotgun. Why draw out the agony? Just close it, liquidate the assets over a slightly longer time than is currently on the cards, and be done with it.
    Last edited by AnotherJoe; 08-08-2019 at 9:38 AM.
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
    • Malthusian
    • By Malthusian 8th Aug 19, 9:19 AM
    • 7,080 Posts
    • 11,418 Thanks
    Malthusian
    • #9
    • 8th Aug 19, 9:19 AM
    • #9
    • 8th Aug 19, 9:19 AM
    Funnily enough the first time I heard of Burford Capital was when the Allansons LLP scheme which promised risk-free FSCS-protected returns of up to 50% over 6-18 months was being shilled on these forums.

    Burford Capital was cited as evidence that litigation funding could make oodles of money. How the past performance of Burford Capital meant that a scheme offering returns of up to 50% over 6-18 months could be risk-free was of course not explained.

    What a surprise that Burford wasn't all it seemed either...
    • tin586
    • By tin586 8th Aug 19, 9:50 AM
    • 92 Posts
    • 54 Thanks
    tin586
    What about selling and buying something else?


    p.s. Just been reading the MW report. I'd get out of Burford right now. Unless they are lying about the facts, Burford's numbers are based on a pack of accounting shenanigans that are reminiscent of Enron.

    Well worth reading.
    Originally posted by AnotherJoe
    An interesting read, but the authors of the report are hardly neutral observers. Exaggeration suits their (short) aims.

    The Burford rebuttal will also be worth reading before forming conclusions. One assumes it’s going through their lawyers and will come out later today.
    • bowlhead99
    • By bowlhead99 8th Aug 19, 10:11 AM
    • 9,557 Posts
    • 17,418 Thanks
    bowlhead99

    I can’t think of anything else but to hold on.
    Originally posted by tin586
    One thing to consider after a big price change up or down, is that if you didn't already own the amount of shares in Burford that you own today, and instead has the equivalent amount of cash that they're worth today, just sitting unspent in your investment account... would you spend that money at the current price to buy those shares, if there was no dealing charge or stamp duty to pay on it?

    If you wouldn't, and would more likely just keep the cash or buy something else, then it's probably not rational to continue to hold.

    As to the MW report, some of it is quite damning in relation to the way returns on some deals were reported. And clearly the CFO producing the accounts is not independent from the CEO, being married. And the points they make about the business having potential liquidity issues for committed spending on open or future cases, are valid, and with a much reduced market cap after the MW report, one might expect fundraising on both equity and debt markets to be more difficult.

    However, just as with many 'bear raids' by short selling 'research companies', there is a bunch of what I would call "deliberate misunderstanding" of the financial statements so that lay readers may think that - taken with the other negative points which have merit - the whole business is lies and a sham and deliberately deceptive. Muddy Waters (who specialise in muddying the waters to make long investors think they should join the shorters, to help MW get greater profits) are looking to stir up as much trouble as possible.

    For example, they spend several pages in their report banging on about recording of realised vs unrealised gains in the P&L. - apologies the following may be a bit dry for non-accountants

    Say the company invests 100 into a litigation finance project. As the project progresses they are likely to do a fair value assessment based on a (albeit inexact) valuation model of what people would pay for the asset. So it may get revalued to 250, recording the positive (unrealised) fair value movement of 150 in that year's accounts. That in itself isn't an unusual practice. Then in a later year the company eventually gets its proceeds of 450, which was 200 more than the carrying value, for a total realised gain of 350 against the cost of 100.

    Now the project has completed and the gain has actually been realised, the full 350 realised gain is put into the financial statements in the same line as all other realised gains and losses for the year, and if the overall realised gains for the year are positive the line will be called 'net realised gains' rather than 'net realised losses'. At the same time, the balance sheet no longer has an asset with cost of 100 and value of 250, so the 150 of unrealised fair value movement booked in the previous year will be reversed out, and come through as a negative 150 underneath the positive 350 of realised gains.

    The effect is that the overall 200 profit for the year feeds through to the accounts, but is broken out as +350 real gains and -150 valuation movement in year 2; this followed the +0 real gains and +150 valuation movement in year 1. Over the two years the accounts reflect the genuine 350 realised gains that were made; and there is a net nothing sitting in unrealised valuation movement once the asset no longer exists.

    That is all quite normal accounting practice.

    But MW portray it as a great deception and spend several pages showing how they have 'proved' through a couple of different methods, that the accounting is how I described it.

    They say that because the realised gains of 350 end up in a line called 'net realised gains', it is an outrage and misleading. They say that surely the net gain in year 2 is only 200, and all the investors will have been misled by this practice, because the investors won't realise that the current year positive revaluation gains on other projects in year 2 are suppressed by the -150 from the first project, and the underlying gross unrealised valuation gains going into the fair value movements from those other projects are pretty high. They think investors will get a false impression of what deals are real profits vs unrealised each year.

    They (pretend that they) think the company is choosing to artificially inflate realised gains and artificially suppress unrealised ones as part of some elaborate ruse: "BUR Uses "Realized Gains" to Mislead Investors About its Fair Value Accounting" takes up five pages of their report. They have a screenshot of the accounts where they underline the word 'net' within 'Net realised gains' and say they believe that investors misunderstand these gains to be net of invested capital and previously recognised gains. Clearly of course there are multiple projects going on and the narrative for this line item within total investment income literally means realised gains (against invested capital) net of realised losses (against invested capital).

    I expect the 'research team' of shorters misunderstand the reporting because their home country accounting standards (US GAAP) have different captions and presentation to UK/international standards (IFRS), but rather than recognise that it's a perfectly standard treatment under IFRS, they double down on their misconception and spend a chunk of the report calling it out, and state that "To the extent that we are correct that most investors misunderstand Net Realized Gains, it is almost certainly because BUR deliberately misled them".

    The problem for Burford is that MW throwing some accounting commentary portraying them as bad guys, along with other 'shenanigans' they have uncovered will add up to a damning report. Fighting back on some of the accounting points via an RNS will not make the market think 'oh, that's ok then, it's all a fuss over nothing,'.

    If you are a professional shorter you can publish a report, which contains some points of intrigue or dubious practice, and it goes instantly viral with the speed of communications these days, and captures hearts and minds. Companies that put out a press release saying 'this is how accounting standards in our country require us to present it, and the auditors have signed off for years' do not capture the public imagination in the same way.

    If Burford was valued at £15 before the report came out, and the sum total of what is true would lead investors to only value their business at half what they had previously thought, the price should drop to 50% of the £15; if that lower market capitalisation makes it harder (or more dilutive) to obtain the level of future financing for their deals that they want, it could drop further as a consequence, though that might already be wrapped up in the '50% drop' depending on how you look at it. If the finance taps are turned off, they are in trouble, because their whole business model involves providing finance that they source at much lower cost than the project IRR available, and their investments aren't liquid.

    At the moment the price has bobbled around between £5-6 since yesterday late morning. It might represent a decent entry price, or might not. If it does, perhaps you shouldn't sell, as long as you're happy with the risk. If i you don't think it does, because you think it will go lower, you might as well sell now before it does go lower
    Last edited by bowlhead99; 08-08-2019 at 10:16 AM.
    • Reaper
    • By Reaper 8th Aug 19, 10:36 AM
    • 6,727 Posts
    • 5,090 Thanks
    Reaper
    If Burford was valued at £15 before the report came out, and the sum total of what is true would lead investors to only value their business at half what they had previously thought, the price should drop to 50% of the £15; if that lower market capitalisation makes it harder (or more dilutive) to obtain the level of future financing for their deals that they want, it could drop further as a consequence, though that might already be wrapped up in the '50% drop' depending on how you look at it. If the finance taps are turned off, they are in trouble, because their whole business model involves providing finance that they source at much lower cost than the project IRR available, and their investments aren't liquid.
    Originally posted by bowlhead99
    The trouble is although the report undoubtedly exaggerates the problem it does appear Burford have not been truthful in reporting the progress of their deals. That is something the market hates as it starts to wonder what else they are not being truthful about. The continual replacement of the CFO isn't a good sign either. You wouldn't normally expect that in a booming company with great prospects. So it is fair enough the share price ought to drop more than 50% (to use your example).

    Factor in the need to keep raising money and the zero chance of Woodford and Invesco riding to the rescue any more and it starts to look very risky.
    • rr755507
    • By rr755507 8th Aug 19, 10:50 AM
    • 111 Posts
    • 150 Thanks
    rr755507
    They really need to take it round the back of the woodshed with a shotgun. Why draw out the agony? Just close it, liquidate the assets over a slightly longer time than is currently on the cards, and be done with it.
    Originally posted by AnotherJoe
    Given his career is toast - wouldn't it make sense for NW to string it out for as long as possible so he can continue to collect his fees?
    • AnotherJoe
    • By AnotherJoe 8th Aug 19, 10:56 AM
    • 16,363 Posts
    • 19,666 Thanks
    AnotherJoe
    An interesting read, but the authors of the report are hardly neutral observers. Exaggeration suits their (short) aims.

    The only exaggeration i see is in the language they use to describe numbers. I doubt teh numbers are false or (ironically) I can see a lawsuit coming. Of course Burford are probably obligated to launch a lawsuit anyway because if they dont that would be tantamount to admitting its true and they would hope it would drag on long enough to get forgotten and just be background noise. But I think most people who read the MW report would either sell, or not invest.


    The Burford rebuttal will also be worth reading before forming conclusions. One assumes it’s going through their lawyers and will come out later today.
    Originally posted by tin586

    Given the predilection in the US to sue at the drop of a hat, and the experience of MW, I'd be quite confident that everything they have stated as a fact, is a fact.

    So I'd be confident that for example that MW's claim that Burford claim profits when they win a court case but before they have received the damages is correct. So if they win $30M and instead of taking cash take it in shares in a company that plummets to zero, they still account for the £30M as a win.
    Or if they win in a case, get a lien on land as their winnings that turns out to be worthless and get sued by the eventual owner of that land, they still claim the original over valued land as profits and dont account for the new court case as potential liabilities.

    Or if they lose in a court case but are bailed out by another investor, they count that as a win. And so on. There's too much there for it all to be mere opinions.
    The fact that Burford need extra money now is the icing on the cake. MW claim they are close to insolvency. If so, this paper is obviously very carefully timed to create maximum damage.
    I have no dog in this hunt, but I'd say things are looking very very bad for Burford.
    Last edited by AnotherJoe; 08-08-2019 at 10:59 AM.
    Please dont criticise my spelling. It's excellent. Its my typing that's bad.
    • ffacoffipawb
    • By ffacoffipawb 8th Aug 19, 10:59 AM
    • 2,987 Posts
    • 2,130 Thanks
    ffacoffipawb
    Given his career is toast - wouldn't it make sense for NW to string it out for as long as possible so he can continue to collect his fees?
    Originally posted by rr755507
    But, oh wait ...
    Retired: Financial Independence achieved in June 2019.

    Cofiwch Dryweryn
    • Malthusian
    • By Malthusian 8th Aug 19, 12:05 PM
    • 7,080 Posts
    • 11,418 Thanks
    Malthusian
    Given his career is toast - wouldn't it make sense for NW to string it out for as long as possible so he can continue to collect his fees?
    Originally posted by rr755507
    What makes sense for NW is to "do the decent thing" and announce the fund is to be wound up precisely one day before the FCA or another outside agency forces him to do it anyway.

    The guy's a multi-multi-millionaire and there's a law of diminishing returns with how much of WEI investors' remaining money he can add to his retirement fund.

    Don't laugh but I don't think Neil Woodford is solely money-motivated. (Nobody is; most people characterised as "greedy" are in fact running on irrational base instincts and not the abstract concept of accumulating wealth.) He could have made oodles of money for as long as he could be bothered by using his reputation to run WEI as a closet FTSE tracker and collecting 0.75% per year from its steadily rising billions.

    Yesterday one of the investment trade papers ran an article on some old comments they'd dug up from Woodford investors in 2017-2018. They were accusing Woodford of running the fund as a charity. More interested in "supporting fledgling British businesses", i.e. playing at Dragons' Den on a grand scale, than making money for investors. I think there's a lot in this.

    This is why I don't think Woodford's sole desire is to string out the end of WEI for as long as he can to extract fees. It's a factor but not the only one. A bigger one is stubbornness. Woodford has a lot invested in the idea that he is a contrarian genius and will have the last laugh eventually. Both financially and psychologically.

    It was never going to happen that he would immediately hold his hands up and say "yeah, it's all gone wrong, my bad" in May. Almost nobody does that and Woodford is where he is precisely because he doesn't.

    When Woodford's exhaustion from deflecting brickbats outweighs the remaining money he anticipates shuffling into his pension fund, he will wind WEI up.
    • Midas
    • By Midas 8th Aug 19, 1:25 PM
    • 574 Posts
    • 272 Thanks
    Midas
    Burford have released a response to the short attack by MW, which at the time of posting had caused a recovery spike in the share price of about 15%.
    Midas.
    • Reaper
    • By Reaper 8th Aug 19, 3:53 PM
    • 6,727 Posts
    • 5,090 Thanks
    Reaper
    I have to admit to my untrained eye it looks like a pretty good rebuttal. I still don't like the CFO arrangement but the rest is reassuring.
    • Thrugelmir
    • By Thrugelmir 8th Aug 19, 4:10 PM
    • 65,860 Posts
    • 58,002 Thanks
    Thrugelmir
    They were accusing Woodford of running the fund as a charity. More interested in "supporting fledgling British businesses", i.e. playing at Dragons' Den on a grand scale, than making money for investors. I think there's a lot in this.
    Originally posted by Malthusian
    The US are so much better at supporting fledgling businesses. Getting on the ground floor so to speak is where the real money is to be made. Not when the company is already listed. Of course the majority fail to take off. Though with listed companies on the LSE now only having an average lifespan of 15 years. Good opportunties are getting harder to find. With fewer and fewer companies even coming to market. Preferring to stay private instead.
    ““there really is no such thing as ‘the future’, singular. There are only multiple, unforeseeable futures, which will never lose their capacity to take us by surprise.””
    ― Niall Ferguson
    • Reaper
    • By Reaper 8th Aug 19, 4:45 PM
    • 6,727 Posts
    • 5,090 Thanks
    Reaper
    The trouble with Woodford was he was doing it with an Income fund. There is little to no income from unlisted stocks, just capital growth (hopefully).

    If he had called it a Private Equity fund or launched a VCT instead than that would have been fair enough.
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