Burford: Horrible Second Half Results Validate our Thesis (BUR LN)
Burford’s abysmal second-half performance speaks to the company’s exaggerated marks, which are married to a flawed business model. Second half net realized gains were paltry, despite Burford seemingly having strong incentive to prove that it can monetize the investments on its ever-expanding balance sheet. Petersen accounted for approximately two-thirds of 2019 net realized gains. In other words, outside of Petersen, FY 2019 monetizations were dismal. This fact further illustrates the concentration of Burford’s returns among a narrow range of cases.
Even more troubling is that Burford’s late H1 sale of Petersen appears to have been anchored by one of the funds it manages. Some might wonder whether by moving some of the claim from the left hand to the right hand, Burford manipulated the market for the Petersen claim. That is compounded by doubts about a) whether the new Argentine government is interested in paying Burford, and b) whether Argentina may satisfy the claim by paying in Argentine pesos (or in a dollar amount significantly decreased by the peso’s depreciation). Of course, Burford stubbornly refuses to disclose where it marked Petersen, which has become farcical with the realization that Burford has established the price at which it would both buy and sell the claim.
In Burford’s August 2019 response to our initial report, it made a point that its liquidity was not at issue, claiming to have approximately $400 million of cash. We of course had questions about how Burford’s cash balance had purportedly doubled in the short time since H1. Perhaps those questions are now moot, as Burford’s FY 2019 cash balance is back in line with the much lower level as of H1.
Burford talked up its complex strategies on its February 3rd call. Just a few ironic hours later, a judge excoriated Burford’s conduct of an appraisal rights claim against Perry Ellis in which Burford sought more than 2.5x the approved sale price. (The judge issued a declaratory judgment that Burford had no appraisal rights under the applicable statute.) This decision and the facts of the case give rise to various questions about how Burford marks appraisal rights claims and its competence in pursuing them.
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