Burford Capital Ltd’s (LON:BUR) results last month were full of “misleading padding” and “putting lipstick on the pig by moving the goalposts”, according to short-seller Muddy Waters.
A new volley of criticism has been levelled by the San Fransisco-based hedge fund at the AIM-listed litigation finance group as it looks to move towards a US stock market listing.
Late last month Burford, which funds lawsuits in exchange for a cut of the settlements, reported that it had almost doubled cash generation to US$1bn in 2019, while the group also disclosed a US$773mln carrying value of the YPF assets, being the estimated secondary market price set for Butford’s Petersen claim against the Argentine Republic and YPF, the Argentine national oil company.
The YPF assets represent 42% of Burford’s total US$1.8bn, of which US$734m is unrealised gains and the remainder being invested capital.
Muddy Waters, which continues to hold a short position on Burford, said in a new report published on Tuesday that the litigation company’s results “use reclassification, redefinition to inflate cash receipts, operating profit, and to otherwise present a misleading picture of the business”.
“Cutting through the new bullshit,” the short-selling fund said Burford’s cash receipts were obscured by changes to segment reporting and seemed to actually be down 11.8%, while 2019 operating profit was adjusted to be down approximately 8%.
“By constantly changing its segment reporting, Burford is hiding the ball from investors and making it difficult to do true apples-to-apples comparisons between periods.
“Over the past three years, Burford’s investment-related balance sheet line items have gone from four to six to three, bringing with them numerous adjustments,” the report said.
The hedge fund added that Burford’s vintage direct return recoveries for 2019 seemed to be inflated by reclassifying a complex strategy case as direct after the end of the fiscal year, which it felt was “misleading padding”.
Last summer, Burford’s shares more than halved after Muddy Waters accused it of “egregiously misrepresenting” returns and “Enron-esque mark-to-model accounting”.
The company responded by saying that trading data has uncovered evidence of “illegal market manipulation” rather than any flaws in its business, though it later overhauled its board in a bid to appease investors concerned about poor corporate governance.
On Tuesday morning, Burford’s shares were down more than 6% to 449.8p.
Burford has been contacted for a response.