Viceroy admirers are not many
• Viceroy has had two successes, but more often its reports target companies that are already in the sights of short sellers
Viceroy Research’s reports on companies around the world show that with two notable exceptions it targeted groups already the subject of short selling, releasing reports just as their share prices collapsed.
Viceroy Research’s reports on companies around the world show that, with two notable exceptions, it targeted groups already the subjects of short selling, releasing reports just as their shares collapsed.
The US-based short seller captured the imagination of South Africans with its sensational report about Steinhoff International in December.
This followed Steinhoff CEO Markus Jooste’s resignation and an admission from the retailer that it was investigating accounting irregularities, events which prompted a drop of more than 90% in its market value.
But Viceroy — led by former social worker Fraser Perring, and which released its report on Steinhoff two days after shares began declining following a Steinhoff update that its financial results would not be signed off by auditors as they had not finalised their review of criminal and tax issues first raised by German regulators — does not have many admirers.
“[Perring] got lucky when his report on Steinhoff coincided with Steinhoff’s collapse, and now everybody thinks he’s a genius,” says Paul Theron, founder of asset manager Vestact. “Many short seller reports are written which go nowhere,” said Theron. “They are ignored because the writer is deemed irrelevant or the short case is nonsense. Hundreds of short sellers write these theses. Especially for companies like Tesla, Shopify, Netflix, Apple …”
Theron says shares tend to gain in value over time, with short sellers getting lucky “every now and then”.
The first report archived on Viceroy’s website is on Australian sandalwood processing company Syrah. On December 23 2016, the day Viceroy sounded the alarm about errors in profitability assumptions and Syrah’s unstable management team, investors had already loaned out nearly 26% of the company’s shares for short selling. The short positions were worth A$232m.
Quintis, also in Australia, saw its short interest swing between 0.3% and 1.14% during the 12 days before Viceroy released its report on sales irregularities at the sandalwood processing company on May 14 2017.
Quintis’s shares had already plunged nearly 20% to A$0.85 five days before Viceroy said it had bogus sales channels and was booking fictitious sales revenue.
“Every chance they hunt out already shorted shares and then see if they can build a story around it,” said Simon Brown, founder of investor education platform JustOneLap. “I would assume — and I may be wrong — that they would look for a strong(ish) story. But [it] is largely subjective. Markets are [about] opinion and ultimately a voting machine on different opinions.”
Brown said Viceroy’s Steinhoff report was strong but it missed the mark with its first report on Capitec, which received a lot of attention.
“The follow-up Capitec report was stronger,” he said.
In the US, Viceroy hit it big with Caesarstone, where nobody held short positions, on June 14 2017. For a week after Viceroy’s report on the countertop manufacturer, the share declined marginally.
It repeated its success with pharmaceuticals company NeuroDerm, also not affected by apparent bearish sentiment until Viceroy’s August 2017 report warning against Japan’s Mitsubishi Tanabe Pharma’s $1.1bn buyout of the company’s shares. Institutions sold 0.67% of NeuroDerm’s shares short the day after this report, raising their bets to 2.3% (or $23.5m) two weeks later.