Research

ACCOUNTING & GOVERNANCE SCREEN

Please download the latest version of our Accounting and Governance Screen by clicking on the link provided below. This screen is an excel-based spreadsheet linked into Bloomberg which means that subscribers can check any company globally for more than 60 potential accounting and corporate governance red flags. Importantly, it not only quantifies whether a ratio is unusual relative to its global industry peer group, but whether the one or three year change in that ratio is unusual. After all, incremental changes are arguably more important than the outstanding number. It incorporates well-known mathematical models aimed at highlighting profit manipulation (Beneish’s…
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Insights

HIGH CONVICTION SHORTS

The top five

Gillem Tulloch · 23 April 2019

Companies that made our list of high conviction shorts include Australian construction company CIMIC, biosimilar producer Celltrion, software company Kingdee, online marketplace Pinduoduo and drugs distributor Sinopharm. On average, we estimate there is 50% share price downside and clearly identifiable catalysts. Companies on which we’ve written but have failed to make our shortlist owing to a lack of catalyst or downside include Anta, A2 Milk, Traditional Chinese Medicine, Hengan, Bitauto and Bilibili. GET PDF Have some conviction Although an accounting research firm, we have been asked to maintain a high conviction list of possible shorting candidates with clearly identifiable catalysts…
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CIMIC GROUP (CIM AU)

SELL/SHORT: Engineering profits

Nigel Stevenson · 10 April 2019

We estimate CIMIC has inflated profits by around 100% in the last two years through aggressive revenue recognition, acquisition accounting and avoidance of JV losses. A lack of supporting cash flow has been obscured by the increased sale of receivables and reverse factoring of payables. While reported net cash was 69% of equity at YE18, we estimate adjusted net debt-to-equity of 74%. CIMIC’s refusal to provide substantive answers to our questions suggests it has something to hide. Its shares trade on a premium multiple of 19x FY19 consensus earnings; however, we derive a target of A$23/share based on a double…
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KINGDEE INT SOFTWARE

Questionable accounting, mediocre performance

Mark Webb · 26 March 2019

It’s difficult to find fault with David Webb’s conclusions that Kingdee struggles to make a profit once adjusting for government subsidies, one-off gains and questionable transactions with related parties. The company’s rebuttal attempts to allay investor fears by highlighting ample operating cash flows, but our analysis suggests that even these look inflated. We have additional concerns about the deconsolidation of Qingdao Xinrun Real Estate prior to the apparent completion of the deal, possibly to flatter financials. If government subsidies are considered core profit, Kingdee trades on a demanding 78x FY19e. It is a possible shorting candidate given expensive valuations, weak…
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