Friday, 12 May 2017

All good things ...

Friday 12th May 2017

Seven years is a long time to wait but at long last, PwC, the auditor to Connaught Plc, the latter which collapsed into administration due to accounting irregularities in early 2010, has finally been fined for signing off the books. 

PwC fined £5 million
Source: Sky News

Here I am, looking somewhat younger and more sprightly ...

City Sceptic Strikes
Source: Financial Times
Readers may note the amusing commentary from Connaught's CEO at the time, Mr Mark Tincknell. 

After I issued a Sell note on Connaught, Mr Tincknell sent an email round to other sell side analysts, investors and the media telling them that I was under the pay of hedge funds - that were short of the stock, that I was generally incompetent, and had got all my numbers wrong. He had a point with regards to my numbers. I'd massively underestimated the bad debts, and other borrowings that Connaught had hidden. 

There were several lessons I learnt from that period. 
  1. Crooked management will go to great lengths to smear and traduce those who speak out against them. 
  2. Director purchases are meaningless when not placed into context or it is not revealed how those purchases may have been financed. See here and here
  3. Other sell side analysts will not hesitate to rally to the defense of crooked management.
  4. Anyone that speaks out against a company will generally be ignored by its major investors who fall into a peculiar state of denial. 
  5. When things unravel, the company blows up faster than you can say "das ist nicht so gut".

Not a lot has changed.

Disclaimer: The information, discussions or topics referred to on this blog should in no way be considered “advice” to buy or sell anything. The information which may be referred to is freely available in the public domain and where required the source of information is referenced to for verification. While every effort has been made to ensure the veracity of any information contained within this blog, the author accepts no responsibility for the accuracy of any information contained within this blog or for the sources of information which may be referred to. Readers are responsible for their own actions and interpretation of the information contained within this blog. 

Tuesday, 6 December 2016

Wirecard (WDI GR) ... 'Skin in the Game'?

Tuesday 6th December 2016

No sooner had I finished writing the post below, than I was alerted to yet another range of alarming concerns being raised regarding Wirecard (WDI GR). Whereas originally, there was the:

FT (here, here, here, here, here, herehere, here, here, and here),
J Capital Research,
then Zatarra Research & Investigations

THIS time, an unnamed author has meticulously pieced together a whole range of information. It is fascinating stuff.

This follows on from the engrossing article published a few weeks back in Reuters:
How a British town became a hub for online porn and poker

As for me, I have written on Wirecard before (see here), focusing on its acquisition of the Indian, GI Retail business.

This post will likely be another of a series of further posts looking at Wirecard.

In the spirit of openness, I am short Wirecard. Wirecard is my biggest short position since Globo (GBO LN). In fact, my confidence has persuaded me to make it my biggest short ever. Time will tell if this is mere swagger. However, my money is where my mouth is which is not altogether clear for others, and so on that subject I present these observations below ...

Director Purchases

I've written on Director purchases before: see here - Director purchases and sometimes lazy longs.

By and large, investors like management with stakes in the companies they run. The thinking goes, that with 'skin in the game', any weakness in the share price is felt not just by the investors but also by management. Hence, interests are closer aligned, and there's few better signals to get an investor's fists pumping than seeing a Director dip his/her hand in their pocket to hoover up some stock. 

Usually this simple reasoning is valid. Usually. 

Aside from the example of Connaught in the link above, more recent examples of where this reasoning has gone wrong include:
  • Rob Terry, the former Chairman of Quindell (now Watchstone Group Plc WTG LN) and his use of the services of Equities First Holdings (EFH); and 
  • Konstantinos Papadimitrako, the former CEO to the fraud, Globo Plc (see concerns raised here). 
In Rob Terry's case, he initially led market participants to believe that he'd pledged some of his Quindell stock as collateral to an outfit called Equities First Holdings (EFH) in exchange for cash that he then intended to use to buy further Quindell shares. Most of Quindell's shareholders rejoiced at this gearing up. However, in the event, while Mr Terry bought a few shares, he bought nowhere near as much in value as the cash amount he received when pledging his stock for the loan. Mr Terry then withdrew from any further dealings with EFH, kept the majority of the cash from the pledging of his stock, and as soon as he stepped down from Quindell's board, he sold a load more stock into the market. 

In the example of Papadimitrako, he merely dumped as much of his c. 18% stake in Globo as was possible in the months leading up to Globo's bankruptcy. This selling was concealed from Globo's hapless shareholders as Papadimitrako simply didn't report his selling until the days after he came clean on the falsification of Globo's financials. All told, Papadimitrako probably pocketed at least £12 Million through selling stock and not declaring it until it was too late. 

There are other examples, but in each case of the three given above, Connaught, Quindell, and Globo, despite flags being raised well in advance of each company's downfall, longs were seemingly always comforted by the management's 'skin in the game'.

Purchases by Wirecard's Management

According to Bloomberg, through his German company, MB Beteiligungsgesellschaft mbH (MB B), Markus Braun, Wirecard's CEO, is Wirecard's third largest shareholder. Bloomberg shows that MB B holds 7% of Wirecard's stock at the latest count, not far behind the institutions, Jupiter Investment Management and Alken Asset Management; the No. 1 and No. 2 shareholders respectively. The other major holdings can be seen in the table below: 

Major holdings in Wirecard AG
Source: Bloomberg
Bloomberg also has a feature which shows the timing of Markus Braun's sales and purchases through his German company, MB B. The data goes back to at least mid 2008. Red is sales, green represents purchases. This can be seen in graphical form below:

Sales and purchases by MB Beteiligungsgesellschaft mbH (MB B - Markus Braun's German company)
Source: Bloomberg
The timing, volume and closing price on the date of transaction of those MB B sales and purchases is shown by Bloomberg in tabular form below:

Sales and purchases by MB Beteiligungsgesellschaft mbH (MB B - Markus Braun's German company)
Source: Bloomberg
This information makes for some interesting number crunching. Word of warning, I'm assuming Bloomberg data is an accurate source and also that I've not made any inadvertent errors in my maths, so please do double check with your own Panasonic scientific calculators. 

Ok. Here goes ...

The Number Crunching

On my maths using Bloomberg's data, since July 2008, Markus Braun has purchased 1,365,000 shares in Wirecard through his German company, MB B. 

Again on my maths using Bloomberg's data, since July 2008, Markus Braun has sold 1,414,050 shares in Wirecard through his German company MB B. 

However, with the exception of the 50,000 shares and a further 150,000 shares, which MB B acquired in 2008, the remaining 1,165,000 were purchased after MB B sold 1,414,050 shares in 2012.

At the closing prices listed by Bloomberg in the table above (which does not necessarily mean the actual prices realized but might be a ball park figure):
  • The purchases in 2008 would have cost MB B, c. €1 Million. This is by no means small change. 
  • The subsequent sales in 2012 would have brought to MB B, proceeds of c. €24.2 Million. A material win. 
  • The subsequent purchases from 2015 onward, would have cost MB B, c. €45.4 Million. A significant outlay. 
Now, of course there is some rounding error here and there is no guarantee that sales and purchase proceeds and costs would be made exactly at the closing prices listed above. But ball park figure wise, it would seem possible that MB B has hauled in c. €24.2 Million in share sale proceeds and spent c. €46.4 Million in purchasing shares in Wirecard. A net expenditure of c. €22.1 Million on Wirecard stock by MB B since 2008. Wirecard's shareholders must surely be pumping their fists at the results of that number crunching. 

So what is the source of that net c. €22.1 Million spent on Wirecard shares?

Perhaps Markus Braun is very well paid? 

According to Wirecard's 2015 annual report, Markus Braun received total remuneration payments (including benefits) of c. €2.4 Million (2014: c. €1.8 Million). 

According to Bloomberg's data and on the same basis as used above, MB B spent c. €26.6 Million on Wirecard share purchases in 2016, and c. €18.8 Million on Wirecard share purchases in 2015. 

So even though MB B hauled in c. €24.2 Million in proceeds from share sales in 2012, it would appear that MB B's net purchases of c. €22.1 Million dwarfs Markus Braun's annual pay. 

Perhaps there's another source?

It would seem that the annual balance sheets for Markus Braun's German company, MB Beteiligungsgesellschaft mbH (MB B) are filed at the German Company Register: www.bundesanzeiger.de

Unfortunately, the most recently available balance sheet for MB B is as of 31 December 2014. Nonetheless, this bears what some may find to be interesting information. Here is that balance sheet in German - and then a google translation (which I have assumed is accurate) into English - below:

Balance sheet of MB Beteiligungsgesellschaft mbH to 31 December 2014
Source: www.bundesanzeiger.de

Balance sheet of MB Beteiligungsgesellschaft mbH to 31 December 2014 - Google translation into English
Source: www.bundesanzeiger.de
According to the MB B filings, as of 31 December 2014, the company held:

  • c. €31.9 Million in financial assets, up from c. €7.0 Million in 2013. It may be worth noting that after the sale of 1,414,050 shares in 2012, that according to data on Bloomberg, the first of MB B's share re-purchases didn't occur until May 2015. This entry may possibly represent MB B's other holdings of Wirecard stock at the time, although one would have thought the market value to be higher than c. €31.9 Million.  
  • c. €28.9 Million in receivables and other assets, up from c. €22.7 Million in 2013. 
  • c. €0.7 Million in cash and cash equivalents, down from c. €7.3 Million in 2013. 
  • c. €25.1 Million in liabilities, up from c. €31 Thousand in 2013. 

Further down the balance sheet of MB B, there are some notes corresponding to the balance sheet items. Here are the notes in German - and then a Google translation into English (which I have assumed is accurate) - below:

Notes to the balance sheet of MB Beteiligungsgesellschaft mbH to 31 December 2014
Source: www.bundesanzeiger.de
Notes to the balance sheet of MB Beteiligungsgesellschaft mbH to 31 December 2014 - Google translation into English
Source: www.bundesanzeiger.de
As shown above, these notes appear to show that as of 31 December 2014, MB B held receivables due from its shareholders, which presumably is Markus Braun, of c. €28.4 Million.

The notes also appear to re-highlight that MB B had c. €25.1 Million in liabilities.

Unfortunately there is no further information on the balance sheet items so it is not possible to conclude:
  1. Why Markus Braun appeared to owe MB B c. €28.4 Million in 2014, nor what it related to?
  2. If the c. €25.1 Million was a debt item, and if so, WHO had MB B borrowed the c. €25.1 Million from and was any security provided had it been a debt?
Although there is scant detail, one explanation - from the notes to the balance sheet - may be that MB B borrowed c. €25.1 Million from an unknown party and has sent some or all of the monies and more to Markus Braun. There are of course alternative explanations as to the funding of Markus Braun's share purchases. For example, he may simply be incredibly rich or there may be tax advantages to this arrangement. But whether this answers why Markus Braun possibly owes MB B the monies he did in 2014 and who MB B possibly borrowed from in 2014 is unclear.

And another thing
As far as I can tell, Markus Braun is not a member of the Board of Management or Supervisory Board of Wirecard Bank. In light of the above, I found that interesting.  

Wirecard Bank - Board of Management and Supervisory Board
Source: www.bundesanzeiger.de
Wirecard Bank - Board of Management and Supervisory Board - Google translation into English
Source: www.bundesanzeiger.de
I am short Wirecard.

Disclaimer: The information, discussions or topics referred to on this blog should in no way be considered “advice” to buy or sell anything. The information which may be referred to is freely available in the public domain and where required the source of information is referenced to for verification. While every effort has been made to ensure the veracity of any information contained within this blog, the author accepts no responsibility for the accuracy of any information contained within this blog or for the sources of information which may be referred to. Readers are responsible for their own actions and interpretation of the information contained within this blog. 

Monday, 21 November 2016

Vodafone (VOD) ... time to turn on a dime?

Monday 21st November 2016

Apropos of just looking at its share price chart (see what I mean below), I noticed that Vodafone (VOD LN, mkt cap £54Bn) has a habit of turning on a dime. Valuation wise, this company has always been something of a mystery to me. Its P/E is not for the faint-hearted, while the EV/EBITDA is not as scary, and consensus forecasts would have it offer an attractive - albeit not well covered - income yield. 

Valuation aside, I notice that in the last five or so occasions where it has approached oversold and the 200p/shr level, it's swiftly turned around and rallied around 10% over the course of the following month. It's currently at 203p/shr and at its most oversold for over a year. Whether this means it will repeat history I do not know. However, I saw January 2017 225p calls, providing 60 days to expiration, at 0.75 pence per lot. This seemed to me to be an attractive price to pay in the light of its historical performance. So in a modest size, I bought them.    

Vodafone share price since Sep 2015
Source: Bloomberg
Disclaimer: The information, discussions or topics referred to on this blog should in no way be considered “advice” to buy or sell anything. The information which may be referred to is freely available in the public domain and where required the source of information is referenced to for verification. While every effort has been made to ensure the veracity of any information contained within this blog, the author accepts no responsibility for the accuracy of any information contained within this blog or for the sources of information which may be referred to. Readers are responsible for their own actions and interpretation of the information contained within this blog. 

Monday, 19 September 2016

Mitie (MTO) ... yet another "one-off"

Monday 19th September 2016

Palm to forehead (Thwack!) time for holders of Mitie (MTO, mkt cap £742m) this morning. 

The group has announced a profit warning where: 
"Operating profit for the full year is now expected to be materially below management's previous expectations as a result of a continuation of the pressures experienced in the first half and further one-off costs of organisational change associated with our cost efficiency programmes, which are expected to total up to £10m in the year."
"further one-off costs" ... hmm. Doesn't the fact that they are labelled "further" kind of suggest they may no longer be "one-off"?

In fact, Mitie has a long history of so-called "one-off" or "re-structuring" associated costs. On my maths, these "other items" together with restructuring, acquisition related and exit costs, have cumulatively totaled c. £216m since 2011. Make that c. £226m as of this morning's update. 

However, I fear there will be yet, further, "one-off" costs to come. I continue to believe that Mitie's P&L has been writing profits its balance sheet can't cash. 

Mitie's amounts recoverable on contracts and other trade receivables classed as non-current assets, continued to pile up in the last accounts. Now standing at near £90m from £0 in 2010. 

Mitie amounts recoverable on contracts and other trade receivables classed as non-current assets, £m
Source: Mitie annual reports
Mitie share price
Disclaimer: The information, discussions or topics referred to on this blog should in no way be considered “advice” to buy or sell anything. The information which may be referred to is freely available in the public domain and where required the source of information is referenced to for verification. While every effort has been made to ensure the veracity of any information contained within this blog, the author accepts no responsibility for the accuracy of any information contained within this blog or for the sources of information which may be referred to. Readers are responsible for their own actions and interpretation of the information contained within this blog.