Author Topic: BUR.L - Burford Capital  (Read 49798 times)

Foreign Tuffett

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Re: BUR.L - Burford Capital
« Reply #390 on: January 23, 2020, 03:33:05 PM »
RE: Petersen and Eton Park

Argentina paid Repsol the equivalent of ~$5 billion in 2/2014 for the expropriation of 51% of YPF from Repso in 2012. Repsol was originally seeking $10+ billion so it, in effect, settled for fifty cents on the dollar.

https://www.repsol.com/en/press-room/press-releases/2014/02/25/argentina-and-repsol-reach-compensation-agreement.cshtml

https://www.nytimes.com/2014/02/26/business/international/repsol-said-to-reach-settlement-with-argentina.html

YPF IPO'd on the NYSE in 1993. Per YPF's bylaws, before taking majority control of YPF, Argentina was required to initiate a tender offer to purchase Petersen's (~25% of YPF) and Eton Park's (~3% of YPF) shares, with the tender price determined by a formula explicitly spelled out in the bylaws. Surprise, surprise, Argentina didn't do the tender offer.

Per slide #21 ("Calculating damages in Petersen") of the presentation BUR released last Sept, BUR (based on its % interest in the two cases) could be awarded billions of dollars. I have attached a Spanish academic paper from 2012 that outlines the per YPF share calculations. Insofar as I can tell its conclusions about the tender price (pages 11 and 12) appear similar to BUR's own.

Note that all of the above is somewhat oversimplified, but captures the basics of the situation, which hasn't been explored in any detail whatsoever in the many pages of this thread.




Schwab711

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Re: BUR.L - Burford Capital
« Reply #391 on: January 23, 2020, 03:47:52 PM »
https://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/bur-l-burford-capital/msg376065/#msg376065

You can calculate Jeffries' $2.5b estimate through the documents you posted. There's a good academic case study on the situation as well that mirrors BUR's damages argument.

If Petersen loses (which in turn affects Eton Park), P/BV is probably ~1.8x. If BUR wins, ~0.8x. The issue is winning and collecting in a reasonable amount of time. The past two years' returns are not indicative of the future, though I'm not saying it's impossible for BUR to have good years again.

Finally, there's outstanding cash flow issues Normax59 has pointed out that we don't have enough data to resolve yet. This may confirm MW allegations or ultimately be the effects of BUR's business model change to pursue dissenter's rights cases.

Tl;Dr: ~640 GBP is a good price relative to peers, but there are many issues to consider between future industry returns and BUR-specific accounting. I don't think BUR is a bad purchase at this price but there's too much risk for me at current valuation.
« Last Edit: January 23, 2020, 03:49:28 PM by Schwab711 »

Foreign Tuffett

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Re: BUR.L - Burford Capital
« Reply #392 on: January 23, 2020, 04:27:01 PM »
https://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/bur-l-burford-capital/msg376065/#msg376065

You can calculate Jeffries' $2.5b estimate through the documents you posted. There's a good academic case study on the situation as well that mirrors BUR's damages argument.

OK, I see three different Jefferies "Assumed Payoff" scenarios: $1.5 billion, $2.5 billion, and $5 billion. Am I understanding you correctly in that you are saying that the calculations in the document I attached line up with the $2.5 billion scenario?

Re: "good academic study" -- are you referring the one I posted, or something else? If the latter, can you link to it?


If Petersen loses (which in turn affects Eton Park), P/BV is probably ~1.8x. If BUR wins, ~0.8x. The issue is winning and collecting in a reasonable amount of time. The past two years' returns are not indicative of the future, though I'm not saying it's impossible for BUR to have good years again.

If Petersen outright loses the case then Eaton Park is probably a zero as well. I disagree that BUR (and friends) have to "win" though. Argentina could settle, just like it did with Repsol.

I agree that collecting from Argentina is difficult due to its perpetual fiscal and political difficulties, but Repsol and Elliot Management have done it successfully.


Finally, there's outstanding cash flow issues Normax59 has pointed out that we don't have enough data to resolve yet. This may confirm MW allegations or ultimately be the effects of BUR's business model change to pursue dissenter's rights cases.

Can you be more specific? The idea is that BUR's earnings are not converting to cash and thus, aren't really "earnings" ?

Tl;Dr: ~640 GBP is a good price relative to peers, but there are many issues to consider between future industry returns and BUR-specific accounting. I don't think BUR is a bad purchase at this price but there's too much risk for me at current valuation.

Fair enough

My comments in bold

Schwab711

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Re: BUR.L - Burford Capital
« Reply #393 on: January 23, 2020, 05:11:39 PM »
1.
https://media.iese.edu/research/pdfs/WP-1055-E.pdf

The $1.5b and $5.0b gross payout  screenshots were illustrative to allow folks to recreate the table. I think $2.5b gross payout is likely the figure investors used to underwrite the purchase of interests in the Petersen case.

2.
Settlement = win, definitely. I suspect a settlement is less likely given Argentina's approach to the case thus far, but I honestly have no idea how to handicap any of the outcome possibilities with any accuracy.

As to collections, not only was non-payment a consideration, but I think at one point I worried that Argentina would be able to pay in Pesos at their official exchange rate. I can't find the cases that led me to believe that was a possibility and I have no idea if this is even a realistic possibility. If I find the notes on whether I was ever able to confirm this or not I'll post it. I assume Argentina will have to pay in US dollars, but I at least remember this being a concern the last time I was researching BUR closely.

3.
I could be more specific with notes on my work computer but it's two-fold. First, that detailed reporting on realizations at the Group and consolidated level don't seem to make sense in 1H 2019. Second, transfers into Level 3 investments are odd. It's not clear exactly what is happening in prior years (which raises the question of quality of book value).
« Last Edit: January 24, 2020, 05:49:00 AM by Schwab711 »

Foreign Tuffett

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Re: BUR.L - Burford Capital
« Reply #394 on: January 24, 2020, 08:31:07 AM »
1.
https://media.iese.edu/research/pdfs/WP-1055-E.pdf

The $1.5b and $5.0b gross payout  screenshots were illustrative to allow folks to recreate the table. I think $2.5b gross payout is likely the figure investors used to underwrite the purchase of interests in the Petersen case.

Yeah, that is the same paper I have/was using. I attempted to attach it to my earlier post, but apparently failed to do so.

2.
Settlement = win, definitely. I suspect a settlement is less likely given Argentina's approach to the case thus far, but I honestly have no idea how to handicap any of the outcome possibilities with any accuracy.

Yeah, it is difficult to handicap the odds here. I do think though, that Petersen and Eton Park are strong cases. The core fact pattern is relatively simple: Argentina blatantly ignored YPF's bylaws, bylaws that seem to have been put in place in the lead up the to IPO specifically to ease investor concerns about Argentina....doing exactly what it eventually did. Basically Argentina went into full on IDAF-YOLO mode due to its IRL FOMO on the Vaca Muerta play

As to collections, not only was non-payment a consideration, but I think at one point I worried that Argentina would be able to pay in Pesos at their official exchange rate. I can't find the cases that led me to believe that was a possibility and I have no idea if this is even a realistic possibility. If I find the notes on whether I was ever able to confirm this or not I'll post it. I assume Argentina will have to pay in US dollars, but I at least remember this being a concern the last time I was researching BUR closely.

BUR's Sept presentation explicitly dismisses this possibility (slide 22): "The weakness in Argentina’s currency is also irrelevant – Petersen held US-dollar denominated ADRs traded on the New York Stock Exchange, and any judgment should be rendered in US dollars and enforceable in the US and in many other countries"

3.
I could be more specific with notes on my work computer but it's two-fold. First, that detailed reporting on realizations at the Group and consolidated level don't seem to make sense in 1H 2019. Second, transfers into Level 3 investments are odd. It's not clear exactly what is happening in prior years (which raises the question of quality of book value).

Good thoughts from you as usual....my comments in bold again