Research

CORPORATE TRAVEL

We’re no fan of acquisition-driven business models, such as Corporate Travel (CTD), but they’re not a crime. The allegations presented thus far by hedge fund VGI Partners against CTD appear, in our opinion, to lack substance and in some instances are plain inflammatory. The short-seller alludes that CTD is faking its overseas profits but fails to provide hard evidence, or explain how this would impact CTD’s financials. In its defence, CTD has provided a fairly comprehensive rebuttal. This shorting campaign against CTD appears to be working as VGI has made allegations against an expensive stock, not because they have much…
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Insights

A2 Milk

SELL: Ready to pop

Nigel Stevenson · 15 November 2018

WA2 Milk (A2M) has achieved super-normal profitability by selling a “special” kind of infant formula to Chinese consumers through unofficial distribution channels. The problem is that A2M has limited IP to protect its product, and competitors like Nestle are closing in. Meanwhile, new Chinese e-commerce rules may hamper its distribution network. It is difficult to see how A2M can protect its returns when it spends far less on marketing and research than peers. Consensus forecasts 30% compound revenue growth for two years on widening margins, placing it on 22x FY20 PER; we see slower revenue growth and contracting margins resulting…
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SMOKE & MIRRORS

Embellishing performance using non-GAAP measures

Mark Webb · 24 October 2018

Accounting standards are designed to make life easy for investors. As such, companies moving away from GAAP measures should be regarded with suspicion. Our review of the 30 largest Chinese domiciled ADRs shows an increasing use of adjusted, vaguely defined and non-GAAP metrics which, in some cases, greatly exaggerates performance. This has likely led to inflated valuations and created a potential shorting opportunity as reality bites. The worst culprits are Bitauto, JD.com, Pinduoduo and Vipshop. GET PDF VIEW SLIDES Adjustments to GAAP data Of the 30 largest China-domiciled US-listed stocks, 26 publish adjusted net income (non-GAAP) alongside the GAAP figures…
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HAILIANG EDUCATION

SELL: Bad teacher?

Gillem Tulloch · 18 October 2018

In the best-case scenario, Hailiang Education (HLG US) is a financing vehicle for its parent company, with cash being siphoned into related parties. In the worst-case, it’s a fraud; and there’s a substantial body of evidence, although circumstantial, to support this: Its financials have similar traits to past frauds, such as unnecessary capital increases and a failure pay dividends; the replacement of a Big Four auditing firm with an obscure auditor; numerous concerns raised by auditors; three CFOs in two years; allegations of underhand dealings with ASA Resource; public listings possibly orchestrated to avoid proper scrutiny; and finally, a shambolic…
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