Trade Alert

Burford Capital (NYSE: BUR) could double ?

_{Posted by Club Member Charles IV 3.10.23}

Litigation financing firm, Burford Capital (NYSE: BUR) stands to receive a $6.2 billion payout from its share of a $16 billion court ruling against the Argentinian government.

The stock currently trades at a market cap of $3 billion, which is about a 50% discount to the $6.2 billion payout the firm is entitled to. I suspect the discount reflects the market’s view of how difficult it may be for Burford to collect the money from the Argentinian government.

The Argentinian government is appealing the case, and is trying to delay paying at least for the year or so it would take for its appeal to be decided.

The prospect of a successful appeal of the court’s ruling looks low. There is only so much the Argentinian government could do to delay paying. Burford has already begun collection efforts and is exploring multiple avenues to collect including seizure of assets belonging to the Argentinian government around the world.

Refusing the court’s ruling to pay will make it very painful for Argentina to navigate international financial markets. So, as much as they might try to delay or resist, I believe the Argentinian government will ultimately succumb, as being cut off from accessing international markets is worse.

Argentina has paid prior judgement quickly in the past, for example, in its 2016 settlement with a group of investors led by Paul Singer’s Elliot Management, over the nation’s 2001 sovereign debt default.

Of course, there’s meaningful risk of non-payment or further efforts by the Argentinian government to delay or avoid paying, but I think this risk is well compensated by the 50% stock price discount.

Sharing this trade idea for those with patience and can tolerate higher risk, I think this could be a 1.5x-2x trade over the next 12 months, depending on how the appeal goes.

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#New Ideas #Burford #Litigation

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