Latest posts

Dan joined FT Alphaville in September 2013, after stints on Lex and as the FT’s Investment Correspondent in New York where he wrote about hedge funds, asset management and markets.

Before that Dan worked briefly at the Investors Chronicle, and has at one point or another carried furniture, sold kids books on doorsteps, and painted but not really decorated.

He also spent four years loitering in Citigroup’s equity research department where he picked up a few ideas about the value of luck, timing and a catchy pitch.

Dan likes interesting charts, short sellers and descriptive triplets. He wants to know more about Europe’s banks, thinks the bond markets are going to be a lot of fun, and finds the whole idea of active fund management mildly amusing.

Send him ideas or even call him up, he’ll write about almost anything (except gold).


Contact Dan McCrum

The (early) Lunch Wrap

Ukraine wars of escalation || UK construction activity up || Germany bans Uber || BMW unveils bulletproof car || Great Barrier Reef dump plan canned || Japan wage growth boosts stocks Read more

Quindell confirms RAC JV is dead

The plan to revolutionise the car insurance industry has crashed. Quindell has announced that what it claimed in April was the world’s largest ever deal to put monitoring devices in cars, is dead.

As the FT reported in August, a joint venture with the RAC to put so-called telematics devices in cars of RAC members failed to get going and talks to restructure the entity, called Connected Car Solutions, fell apart.

Quindell said that it is paying a net £3.5m to buy out its joint venture partner, and has abandoned plans to invest in CCS. Read more

Nixon, back from dead, helping Nu Skin

John Hempton has written a quite remarkable post on Nu Skin, the multi-level marketing company that he has decided to short.

The hedge fund manager was browsing through the company’s debt covenants, when he spotted something odd: the signature of a dead president.

Not only resurrected, but now working at JP Morgan… Read more

Always turn to note 10

On August 28 Afren, the Nigerian oil and gas company listed in London, announced that it has temporarily suspended Iain Wright and Galib Virani, associate directors of the company.

The move followed the suspension of the chief executive and chief operating officer the previous month. The company said that it has continued an independent investigation “in relation to the receipt of unauthorised payments potentially for the benefit of the CEO and COO” by the UK arm of Willkie Farr & Gallagher, law firm.

The press release said:

The Board remains of the view that this will not negatively affect the Company’s stated financial and operational position.

 Read more

Cash, but encumbered cash

A note arrives from house broker Canaccord Genuity which appears to resolve our conundrum about how Quindell spent £335m in the first six months of this year.

The short answer: it didn’t.

The longer answer is largely, as we speculated, that “cash collected” did not mean what we understood it to mean. While the UK’s largest listed law firm said that it collected £220m in the period, it turns out that only £177m of that total was cash available to be used as it sees fit. Read more

Quindell and an industry deaf to its assumptions

A few more things to ponder following the results for Quindell last week, beyond the cash situation that we have already covered.

One is the difference between what the UK’s largest listed law firm has assumed it will get paid for industrial deafness claims it is pursuing, and what UK insures have set aside to pay such claims.

Consider these thoughts from someone insurance minded who attended the Quindell analyst meeting: Read more

Plus500 as a model, citizen

One way to think about companies that have listed in recent years is that they are in the “show me” phase of their existence. Raising cash on a promise and a neat idea is one thing, the important part once the stock trades is to show that the business model works and is sustainable.

So consider Plus500, the Haifa, Israel-based Contract-For-Difference trading group that listed in London a year ago. The shares have since quadrupled, giving it a market valuation of £550m, a quarter of that of its long established competitor IG. The group recently reported first half earnings of $54m, up from $15m in the same period a year ago.

Some aspects of the company’s business deserve consideration. Read more

Quindell, promises and a cash flow conundrum – Update

The cash situation at Quindell is important, hard to follow and weird all at the same time. The revenues that the group reports are largely promises of cash at some point in the future.

So our recommendation to those interested in the UK’s largest listed law firm is to pass over the commentary (don’t worry, we’ll be coming back to it) and turn straight to the balance sheet and cash flow statement. Read more

Hedge Funds and the problem of structure

Not the hedge fund structure, a fee schedule masquerading as an asset class, that is old hat. What we mean is the problem that arises once your pension fund has hired staff to invest in alternative assets.

For instance, consider this nugget of information from a poll of institutional investors conducted by Preqin and written up in COO Connect under the headline Investors to grow allocations to alternatives:

Twelve per-cent of private equity investors and 9% of hedge fund investors said the asset classes had surpassed expectations.

 Read more

The (early) Lunch Wrap

Isis claims to execute US journalist || Missouri Police break up peaceful protest || Balmer departs Microsoft board || BoE unanimity ends || Sterling rises || Russia hits Carlsberg || Glencore profit, buyback || Stocks flat Read more

Apple watch watch: wrist excitement delayed

The lack of smoke signals and reports of millions of wearable devices actually going into production have led KGI Securities to declare:

We believe the launch of iWatch could be postponed to 2015.

 Read more

That was nuts. Is this the crash?

From Bloomberg:

London home sellers cut asking prices by the most in more than six years this month, adding to signs that the property market in the U.K. capital is coming off the boil.

London values fell 5.9 percent from the previous month to an average 552,783 pounds ($922,300), the biggest drop since December 2007, property website Rightmove Plc said today. Nationally, prices declined 2.9 percent, a record for an August.

 Read more

Valeant and the IRS

Buried in page 27 of Valeant’s recent quarterly regulatory filing was some potentially significant news: the pharmaceutical company, currently pursuing a $53bn hostile takeover of Allergan, is under investigation by the Internal Revenue Service.

According to people familiar with the situation a number of individuals, including former senior executives, have raised concerns with the IRS, which has been holding an inquiry into the company for the last two years. The probe by the Large Business and International division of the agency has included an examination of Valeant’s tax arrangements following the 2010 merger with Canadian Biovail, a so-called “inversion” deal that enabled the former US company to dramatically reduce its tax bill. Read more

The (early) Lunch Wrap

Russian convoy at Ukraine border || Alibaba reports accounting regularities at film unit || China banks raise capital || Markets: stocks and bonds rise Read more

Germany joins the 1 per cent club



Trading ever so slightly above 1 per cent at pixel time, but near as dammit to 1 per cent for anyone not inclined to multiple decimal places. Read more

Eurozone stops, waits for ECB

Germany shrank, and France stagnated in the second quarter. Italy we’ve all agreed not to talk about until Matteo Renzi waves his magic liberalisation wand, right? Here’s the FT:

The data from the currency bloc’s two largest economies came as the embattled French government said the disappointing growth meant it would miss its budget deficit this year and halved its gross domestic product forecast for 2014.

Germany’s economy, which provides more than a quarter of the euro area’s output, shrank 0.2 per cent between April and June, according to official figures. The French economy recorded zero growth during the period.

 Read more

The inside is getting out

Some board members are not the best judge of value when it comes to their own stock, but overall you might expect buying by insiders to be a good sign. That theory has prompted Citi to take a look at purchases by directors, as they try to work out whether stock markets are overvalued.

More on the details below but to cut to the conclusion, the data is inconclusive for the UK, while European boardrooms do not appear to be flush with confidence. Read more

Illiberating Hungary

There has been a lot of international politics around, so it may have been easy to miss events in one of Europe’s smaller economies, Hungary.

Some attention may be warranted. Viktor Orban, the prime minister, recently used a speech to a gathering of the Hungarian minority in Romania to announce his desire to create an “illiberal state” and a “work-based society”.

Combined with other policy developments, and the continuation of several constitutional changes that have entrenched the right wing Fidesz party’s grip on the country, international investors might start to feel queasy. One Eastern European expert and long time resident we spoke to was acting on his own advice to clients, and has put his Budapest apartment on the market. Read more

The (early) Lunch Wrap

Balfour Beatty rejects Carillion || RBS to offload Coutts International || Buzfeed valued at $850m || Kurds retake ground as Iraq politicians fight || Stocks rise Read more

A mere trickle of flows, so far

Outflows from US high yield bond exchange traded funds slowed last week, according to JP Morgan, so that mini-correction in debt markets may have run its course.

Keep an eye on US stocks, however, as the mini-correction there has only seen 0.5 per cent of the assets in equity ETFs withdrawn since June 24th, leaving further outflows as a potential source of vulnerability, in the judgement of strategist Nikolaos Panigirtzoglou. Read more

Under-settlement risk at Quindell

Quindell, the UK’s first large listed law firm that started life as a country club before expanding into telecoms, technology, insurance and law, is unusual. Indeed, the company presents risks that we suspect investors, accountants, directors and regulators are unused to thinking about.

One of those for auditor KPMG to ponder is revenue recognition, something we explored in a previous post.

Another is “under-settlement risk”, which leads to a fundamental question: can Quindell ensure that it does the best possible job for its clients while growing at a breakneck pace and meeting promises to stock market investors? Read more

Abil nadir and kudos to Conatus

Short sellers have to be patient, but lest we forget a round of applause please to David Stemerman of Conatus Capital for his call to short Africa Bank, the South African listed lender.

The hedge fund manager used his slot at the 2013 Ira Sohn Conference in New York to offer what now looks like a prescient warning. From the FT at the time:

David Stemerman of Conatus was concerned about South Africa, where he said a boom in unsecured lending threatened to turn to bust.

He picked out one institution, African Bank, where he said profits were highly susceptible to a rise in bad loans. He painted a picture of a country where most borrowers needed new loans just to meet the payments on old ones to stay afloat: “Net income after debt service is negative for almost all income groups.”

 Read more

“He admired Frank Timis as courageous and clever at marketing”

It seems like a good time to dust off the 2010 thoughts of the US ambassador in Sierra Leone on African Minerals, preserved for posterity in the Wikileaks batch of diplomatic cables. (H/T to the FT’s Christopher Thompson).

They tell a story that might have been:

Oluniyi Robbin-Coker, an economic advisor to Koroma, told Ambassador Cheshes January 27 that African Minerals’ activities were, “of course, speculation.” He noted that the company’s share value in London had jumped twenty-fold over the year 2009 (from 20 pence to 405 pence), although the company had no track record for taking a large mine to full production.

 Read more

Herbalife and some big numbers

The current share price of $49, down more than a third so far this year, is not one of those big numbers for Herbaflie. However John Hempton, has spotted some numbers that he thinks could make a difference.

The manager of Bronte Capital, one of the most prominent bulls on the stock, has outlined the number of meals he thinks Herbalife sells in a year. From that he has extrapolated the number of customers it needs to eat them. Hey presto, it is far too many for the pyramid scheme allegation to stick, he argues.

There may be something to it, but it would be a surprise revelation at this stage of the debate, and a few assumptions demand some closer interrogation first. Read more

July was great, says Quindell

Everything is on track, according to Quindell.

The Board reports that the Group has met all its key performance indicators for July (cash conversion, adjusted EBITDA and adjusted EPS)

On the cash flow front the month was one of operating inflows, as defined by Quindell. Although the statement also mentions one wrinkle:

Certain contracts being restructured to ensure the optimum return on cash resources but both profit and cash guidance are not dependent on any upside from these initiatives

 Read more

African Minerals and “certain general corporate information”

African Minerals, the Sierra Leone iron ore miner founded by Frank Timis, has released an update on its financial situation and “selected additional information”.

The company, whose auditors have raised questions about its status as a going concern dependent upon the level of the iron ore price, needs to refinance and the document has been produced as a precursor to that process.

Prospective lenders will no doubt read with interest the sections from page 39 onwards about a recent internal investigation conducted into African Mineral’s relationship with Global Iron Ore — an entity that received large settlement payments from the miner to end marketing contracts in 2012. Read more

Small, or dancing on pinhead small?

Ken Fisher, Forbes columnist and money manager billionaire, took to the pages of the FT in June to poke advocates for small listed companies in the eye.

You don’t want to hold speculative stocks late in a bull market. Don’t be seduced by the siren song of small beats all.

The idea that a collection of small capitalisation stocks are always a better investment than a collection of stodgy and safe big companies is a myth, he wrote.

Macquarie, however, went away and had a look at the data, and they disagree. Although the better conclusion might be about the nature of these types of arguments more broadly. Read more

On the RAC for cash

Two Quindell related pieces worth reading on Monday. One is the FT story on the deal with the RAC to put tracking devices in cars, where plans to revolutionise insurance have run off track:

Quindell and RAC announced their joint venture Connected Car Solutions in April, with the aim of installing more than 2m black boxes at a rate of 50,000 per month, starting from July.

However, installation of the so-called telematics devices in consumers’ vehicles is yet to start, and talks about restructuring the tie-up have stalled, said people familiar with the project.

 Read more

The hare gets rich while you don’t. Back the passive tortoise

Nomura, as part of an excellent report looking at various aspects of active versus passive investment management, have considered Warren Buffett’s famous bet that an index fund will beat a fund of hedge funds over ten years.

Buffett is winning, and the bank’s conclusion is that this is very far from a fluke:

In our view, alternative assets as a group show consistently poor performance. Beta is high. Alpha is near zero, if not negative. Correlation with standard asset classes is high. Return and diversification benefits are negligible.

More on that below, but first note the proportion of pension fund fees going to the alternative investment fund managers. Never have so few been paid so much by so many for doing so little. Read more

The (early) Lunch Wrap

RBS warns about bonus cap || ArcelorMittal profit warning || Direct Line special dividend || Norway driller sees Russian opportunity despite sanctions || Iberia to but new aircraft || UK manufacturing slows || Japanese to live forever || Stocks down Read more