Dan McCrumRead Biography
Intertain, the Canadian gaming group which had hoped to move its listing from Toronto to London as Jackpotjoy in October, provided an update on the slow progress with quarterly results last night. Do admire the adjustments which transform a loss into profit, as well.
In the absence of concrete policy plans from the incoming Republican administration, and a sense of how those might play with the respective caucuses (caucusi?) in the House and Senate, the easy assumption is the Federal government will spend more on bridges and roads and/or cut taxes. But history suggests Trump can act in unpredictable ways.
Herbalife, the nutritional shake multi-level marketing enterprise involved in a three-year battle over the legitimacy of its business model, has agreed to change the way it does business as part of a settlement with the Federal Trade Commission announced Friday. The Los Angeles-based group also agreed to pay $200m compensation to customers to settle a complaint that it, among other things, caused substantial injury to customers through an unfair compensation scheme in which the only true way to profit was through recruitment. There was no mention of the term pyramid scheme, but keep in mind that a multi-level marketing enterprise is at heart nothing more then a product and a compensation scheme. Messy legalities about what makes one operation legitimate and the other illegitimate have shifted for the benefit of those exploited.
Wirecard has issued it’s Q1 results. Turnover at the German payments group jumped from €160m in the first quarter last year to €210m in the first three months of 2016. The results follow a well attended investor day this month, more on which below. While down 2 per cent on Thursday morning, the share price is back above the €40 level it traded at before Zatarra Research & Investigations began publishing on the subject of the company in February. Note too the proportion of shares sold short remains close to a quarter of the market capitalisation, with 12 declared short positions of more than 0.5 per cent even after the annual cost of borrowing stock has touched 20 per cent in recent weeks. The sceptics appear committed to their positions.
Valeant, the somewhat troubled pharmaceutical company which has faced questions about the quality of its public relations, among over things: We appreciate the efforts of the Ad Hoc Committee and its independent advisors over the past five months. After conducting more than 70 interviews and reviewing over one million documents, the Ad Hoc Committee has not identified any additional items requiring restatements beyond those matters previously disclosed. A million documents in five months works out at about one every 13 seconds.
‘A company resides … where its real business is carried on … and the real business is carried on where the central management and control actually abides’. So said Lord Loreburn in the House of Lords in 1906, on what would become a key case for British law concerning where corporate taxes are due. At a moment when attention is focused on money passing through Panama on its way to other sunny locations, a quick reminder that common law jurisdictions tend to focus on where decisions about the money are taken when it comes to tax obligations, rather than the location of the cash itself.
Herbalife, the Los Angeles based purveyor of nutritional shakes through a multi-level network of sales people, has announced a snafu in relation to just how rapidly people were signing up to become Herbalifers. A statement from the company revises some non-financial metrics, mentioned on certain of the 2015 earnings calls, downwards, dramatically in some cases. “Database scripting errors” to blame it says. See the full filing for the details, some highlights below. It comes as we approach the two-year anniversary of the unveiling of a Federal Trade Commission inquiry into the company’s practices, which Herbalife has long said will exonerate it.
One of Europe’s fastest-growing fintech companies plunged by more than a fifth on Wednesday following publication of a highly critical report of its controls by a research group. The crash in the shares of Wirecard, a German-listed payment provider, in a day of heavy trading, highlights a polarised investor debate between investors who have backed a stock market darling and a growing band of hedge funds critical of the company’s accounting practices.
Overnight in Australia Slater & Gordon asked for trading in its shares to be halted while it works with auditors and advisors to finalise earnings, due Monday. The problem appears to be the remains of Quindell, the jumble of UK insurance, legal, solar, car repair and other businesses collected into a basket and sold to the Aussie legal group last year. Turns out there was a big hole in the bottom of the basket through which cash tumbles — something investors may feel talking to anyone in the industry basic due-diligence should have revealed. S&G shares have lost nine-tenths of their value since their peak in April last year. See below for the reasons behind the suspension.
“Oh, didn’t you see it? I put it right on your desk, just inside the timeshare brochure, under that pile of papers.” Keurig Green Mountain Coffee Roasters, manufacturer of single serve coffee pods, published quarterly results on Monday by filing form 10-Q in the normal manner. Breaking with tradition, however, there was no announcement or press release. Who cares, you might ask, as Bart Becht’s JAB Capital and friends have agreed to buy the group in December. Which is probably the reason, not the 9 per cent drop in sales compared to the same period the year before.
A competition: describe in 20 words or less Hexagon AB, the Swedish listed technology group run by Ola Rollén, which has a market capitalisation of €11bn. To help, here’s what the start of the 2014 annual report has to say (or click on the image for the whole thing). MISSION: Hexagon is dedicated to delivering actionable information through information technologies that enable customers to shape smart change across diverse business and industry landscapes.
Steven Cohen is a changed man according to the description given by Doug Haynes, president of Point72 — the thousand-person operation dedicated to growing the billionaire art collector’s fortune. The Mr Cohen of old was a snarling and aggressive trader who dominated the giant trading floor at the heart of SAC Capital, his Connecticut hedge fund renowned for its unmatched investment performance and fees. His dedication to the desk was stuff of Wall Street legend, at one point causing him to be late to the birth of a child. His was the trading book which mattered, pouring money behind underlings’ bets as the mood took him, the centre through which good ideas must flow. Now though Mr Cohen will regularly take time out of the trading day just to mentor young staff, part of the apprenticeship culture at the firm, according to Mr Haynes: He meets with a portfolio manager and their team three or four days a week usually for breakfast, usually for an hour, an hour and a half, purely to to provide coaching. It’s not an evaluation, its not a review, he just digs in and shares his experience. He probably does that on ad hoc basis two or three times a day, through the course of the day.
Farewell then, David Bowie. A great musician, artist and (this is a compliment) financial opportunist. In 1997 he hit upon a wheeze, he would sell the rights to future royalties from his extensive body of work. Securitisation — effectively a loan backed by the future payments — was in its innovation stage, a more innocent time before finance moved onto mass destruction world tours. Bowie’s was actually the first in a line of “Pullman Bonds”, developed by David Pullman. David Bowie was thinking of selling his masters
BoA Merrill Lynch’s Thundering Word suggests you may want to be long cash and volatility at the moment (in case the thought had not yet occurred).* They do also have some other recommendations, defensive growth in the US and yield in Europe and Japan among them. But it’s the chart which catches the eye. Recession risks remain mispriced: profits highly correlated with [Purchasing Managers Indices] and in both US & China PMI’s weak; upward momentum desperately needed to prevent global EPS downgrades (2016 forecast: 9.9%; latest:-5.8%). Note ISM <45 level has coincided with US recession 11/13 times since WW2 (Chart 1).
Slater & Gordon, the highly indebted Australian listed legal group, announced on Thursday it had withdrawn previously issued guidance for the current financial year, which ends in June. The market was a bit surprised by this, as guidance was affirmed on November 30, and the shares dropped 17 per cent to 89 Australian cents. The company’s stock is now worth A$300m, less than half the value of its outstanding debt, and quite a lot less than the A$1.3bn it paid for most of UK peer Quindell in May. What changed in the last two weeks? A new finance director, independent director and auditor have all come aboard recently, and the two men have decided on a review of the group’s financial forecasting.
A belated welcome back to Plus500, the UK-listed but Israel based contract for difference provider which currently deal with clients through Cyprus. It had planned to disappear into the the UK-listed but Isle of Man based Playtech, but that deal died last month. To celebrate we took a belated look at the financial results the company published for the first six months of this year. Revenues were actually higher than the same period in 2014, which is good going considering the company was forced to freeze all UK accounts pending proper implementation of anti-money launder procedures and other regulatory niggles. What surprises, however, was a big jump in the total for trade receivables not explained in the notes to the accounts.
Quindell was an assortment of legal businesses collected into a basket of troubles. In the year before almost all of the UK-listed group was sold to Slater & Gordon, an Australian rival, it made promises to stop burning cash by a series of deadlines, all broken. The A$1.2bn deal closed in May. Slater & Gordon said at its annual meeting on Friday the UK business wasn’t doing so well and the group as a whole will burn through A$30m to A$40m in the first half of its financial year. It still expects to make it up in the second half, however. Have we seen this script before?
Wirecard is the German-listed payment processor valued by the market at almost €6bn. It’s a market darling, a fast growing tech stock with a share price which has quadrupled in the last five years, raising €0.5bn from shareholders along the way. Much of the growth has come from Asia, where the group has bought up a string of local payments business. However J Capital Research, a US and Hong Kong registered independent research group, went looking for Wirecard in the region and reports finding thinly staffed offices, and in two places no office at all. The report, which is undermined in part by some faulty assumptions about Wirecard’s accounting, contrasts starkly with opinions from the 23 bank analysts covering the stock, of whom 17 are buyers and just one is a seller. The company has rubbished JCap’s work, saying it “fundamentally misunderstands the Wirecard business model”, while also disclosing it does not have a physical presence in some of the countries where it claims leading market positions in payment services.
Wirecard, the German listed payments company, is to pay as much as €330m for a business which was barely involved in payments two years ago, according to Indian corporate filings. Accounts for the largest subsidiary of the group to be acquired show qualified audit opinions due to concerns about revenue recognition and an inability to verify key financial totals, and recent resignations of directors and auditors. Sales and profits claimed by Wirecard for the businesses it intends to buy also imply a dramatic transformation in financial performance during the last 18 months. The question for shareholders, from whom Wirecard has raised €0.5bn in recent years to fund such dealmaking, is what exactly has it agreed to buy?
Valeant is getting plenty of attention due to its association with Pershing Square, one of its largest shareholders which also helped the pharmaceutical company try to buy Allergan last year. (Bill Ackman has full confidence in Valeant’s chief executive, Mike Pearson. Goldman Sachs… less so.) Thoughts have turned to Valeant’s cash flow once ties to Philidor, a controversial specialty pharmacy responsible for 6 per cent of sales in the first 9 months of this year, are severed. One sometimes-overlooked aspect to note: the circa $340m $290m* contribution to operating cash flow last year from that attempt on Allergan.
Did you know the London Stock Exchange likes to publish a list of “1,000 companies to inspire Britain”? The corporate equivalent of printing full results from an under 12′s swimming gala, so every mum buys a copy of the local paper, such inclusiveness brings with it a risk the inspiration is not what was hoped. For instance, Globo plc and Quindell, part of the inspirational set in 2013/14, may inspire Britain to take a harder look at how brokers on the LSE’s junior market, AIM, sell stock and oversee the companies doing so.
A surprise from Slater & Gordon on Tuesday: Wayne Brown, finance director of the Australian legal group since before it listed in 2007, is to step down without a replacement lined up. The company’s accounting is subject to an investigation by the local regulator, S&G restated accounts earlier this year due to what it said were basic spreadsheet errors, and managed to publish numbers which changed in several ways once the auditor had a look at them, so his departure is perhaps to be expected. The surprise is that the search for a replacement by Egon Zehnderhas only just begun — Mr Brown will remain in the meantime — suggesting this personnel change was not long planned.
Morning of Wednesday 21 October: we talk to Costis Papadimitrakopoulos about Globo’s apparent lack of customers, and allegations the company has fabricated sales. The Globo CEO and founder denies any wrongdoing. He puts us in touch with longstanding business associate Thanos Giamas, founder and CEO of Metis SA, to vouch for Globo. Following that conversation, according to Monday’s statement: The Chief Executive Officer, Mr Konstantinos Papadimitrakopoulos advised the Company on 25 October 2015 that up to 22 October 2015 he has: • sold 42,049,655 shares of Globo Plc; and • pledged 10,000,000 shares of Globo Plc under a personal loan agreement with Lantau Holdings Limited. The loan will default at close of business today because of two consecutive days of the suspension of the Company’s shares from trading.
Globo plc is a small technology company founded by a champion windsurfer in Greece 18 years ago and listed on Aim, London’s junior market, by reverse takeover in 2007. Since then it has raised more than €100m from sales of its stock and debt. It has some legacy businesses, and has made acquisitions, but its biggest business is now Go!Enterprise, software designed to create a secure bit of space for your employer’s data on your personal phone. However, according to a critical report published by Quintessential Capital Management, a small New York Hedge Fund run by Gabriele Grego, there appear to be problems with reported sales and profits. QCM tried to register an interest to buy the product with 40 different partners, resellers and distributors listed by Globo, without success. Globo “completely refutes all allegations made in this report”, and has requested a suspension to its stock so it can provide a more detailed response. In the meantime, the question for investors and auditor Grant Thornton is who really buys Globo’s product?
A trading update lands from Plus500, the Israeli contract for difference group. Let us draw your attention to a paragraph on its regulatory troubles, which resulted in the freezing of all UK accounts earlier this year. The Group continues to be the subject of regulatory scrutiny. However, throughout the period Plus500 has continued to work with, and provide any requested information to, the relevant regulators in the jurisdictions that it operates in but is currently not the subject of any restrictions on its business operations. No restrictions? This might surprise customers trying to sign up in the UK on Monday, who are told “Plus500UK Limited is currently unable to offer you a trading account.”