June 30, 2020
WiseTech: Taking Out the Trash
WiseTech Global Limited (WTCHF, WTC AX) has been trying to sweep its failed acquisition strategy under the carpet by writing down earn-outs without writing off the equivalent item—goodwill. Sadly, the garbage keeps accumulating, and we expect investors will have an unpleasant surprise when the company reports annual results for FY2020 in August. Look for goodwill write-downs of around $200-$300 mln.
WiseTech frantically rid itself of 40% of the earn-outs from 17 poor-performing acquisitions in May. In a series of scathing interviews with former executives, customers, and competitors of the company’s largest acquisition to date, Containerchain, we have learned that more bad news is about to come out. Containerchain is bleeding accounts, and most of the $87 mln in associated goodwill will have to be written off. This is the first major “auditing” event, for KPMG since serious questions have been raised about WiseTech’s acquisitions performance. We expect the auditors to test goodwill for impairment. It is time for WiseTech to come clean with investors.
Over the past week, Richard White has sold $46 mln in shares, while Co-Founder and Director Maree Isaacs has sold $4 mln in shares. Richard White told the AFR last year “Growing a technology company as rapidly as WiseTech Global, most insiders and founders have very limited opportunity to sell as they are almost always in possession of material non-public inside information.” If there is a write-down in goodwill, we would ask ASIC to review these share sales.
WiseTech frantically rid itself of 40% of the earn-outs from 17 poor-performing acquisitions in May. In a series of scathing interviews with former executives, customers, and competitors of the company’s largest acquisition to date, Containerchain, we have learned that more bad news is about to come out. Containerchain is bleeding accounts, and most of the $87 mln in associated goodwill will have to be written off. This is the first major “auditing” event, for KPMG since serious questions have been raised about WiseTech’s acquisitions performance. We expect the auditors to test goodwill for impairment. It is time for WiseTech to come clean with investors.
Over the past week, Richard White has sold $46 mln in shares, while Co-Founder and Director Maree Isaacs has sold $4 mln in shares. Richard White told the AFR last year “Growing a technology company as rapidly as WiseTech Global, most insiders and founders have very limited opportunity to sell as they are almost always in possession of material non-public inside information.” If there is a write-down in goodwill, we would ask ASIC to review these share sales.
June 26, 2020
IDEX: Champion of Stock Promotes
Be warned. We are short-sellers. We are biased. We do our best to find and present facts, based on extensive primary research and using public sources. But we will profit if these stocks decline in value. We do not offer advice. We present our views.
Ideanomics (IDEX) (formerly Seven Stars Cloud Group, Inc. and before that WeCast and before that You on Demand Holdings and before that China Broadband) is a zero. The company changes its name and promotional story so frequently that it’s hard to keep up. One thing remains a constant, despite all the press releases, buzzwords and hype: shareholders get wiped out.
The latest promote involves a barrage of press releases around electric vehicle “group sales.” However, no one from any of the companies in IDEX’s most recent five press releases confirmed these sales. Representatives from three of those companies and a local government vehemently denied doing any deal with IDEX. We could not identify the fifth. We doubt the auditor, BF Borgers CPA, will be able to either, seeing as that company’s only office is in an industrial district of Lakewood, Colorado, 10,000 miles away from China, where all the "deals" take place.
The run-up in the share price is nothing more than a well-timed pump. The shelf registration announced June 23 is a desperate attempt to raise money, since the company has less than three months of cash in the bank.
The latest promote involves a barrage of press releases around electric vehicle “group sales.” However, no one from any of the companies in IDEX’s most recent five press releases confirmed these sales. Representatives from three of those companies and a local government vehemently denied doing any deal with IDEX. We could not identify the fifth. We doubt the auditor, BF Borgers CPA, will be able to either, seeing as that company’s only office is in an industrial district of Lakewood, Colorado, 10,000 miles away from China, where all the "deals" take place.
The run-up in the share price is nothing more than a well-timed pump. The shelf registration announced June 23 is a desperate attempt to raise money, since the company has less than three months of cash in the bank.
Office of auditor BF Borgers CPA. Photo from Loopnet.
Lakewood, Colorado offices of company auditor BF Borgers CPA PC
May 28, 2020
NG: The NovaGold Pipe Dream
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Thomas Kaplan, chairman: “My sense is that the moment will come in a not dissimilar way to the way that Justice Potter Stewart when answered the question, “How do you define pornography? I can’t define it, but I know it when I see it.” April 2, 2020
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Thomas Kaplan: “You know that our strategy is not to make any wine before its time. A wise man once told me that these kinds of assets are rarer than hens' teeth." October 3, 2018
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For the last 15 years, NovaGold’s management team has systematically misled investors with subjective presentation of information about a deposit so remote and technically challenging that the mine will never be built. Over those years, they’ve been treating this 12-person concept company like an ATM, awarding themselves base salaries that rival those of the CEOs at Newmont and Barrick and total compensation packages comparable with those at Rio and BHP. If the information from the company’s feasibility studies were presented in a more honest light, investors would understand that the Donlin deposit, of which they own 50%, is not feasible to put into production at any gold price.
Management deliberately misleads investors with custom metrics designed to deceive, offering presentations claiming that the deposit will require $6.7 bln in capital, while the feasibility study clearly shows this number is $8 bln (already, we believe, far too low). The proposed natural gas pipeline to power the project is dead on arrival. The terrain around the Donlin deposit is among the most inhospitable on the planet. Based on recent cost-per-inch/mile data we obtained from ICF, we show the costs of the pipeline (if someone were even to attempt to build it) are likely in excess of $3 bln, two to four times higher than management’s previous forecast. One engineer we spoke with who worked on costing the project told us he doesn’t know of any engineering company that has the experience to build such a complex pipeline.Management has a long history of misrepresentation. The Galore Creek project, once promoted as the company’s key asset, was quietly sold at a loss in 2018. In short, this is a stock promote, not a mining plan.
Management deliberately misleads investors with custom metrics designed to deceive, offering presentations claiming that the deposit will require $6.7 bln in capital, while the feasibility study clearly shows this number is $8 bln (already, we believe, far too low). The proposed natural gas pipeline to power the project is dead on arrival. The terrain around the Donlin deposit is among the most inhospitable on the planet. Based on recent cost-per-inch/mile data we obtained from ICF, we show the costs of the pipeline (if someone were even to attempt to build it) are likely in excess of $3 bln, two to four times higher than management’s previous forecast. One engineer we spoke with who worked on costing the project told us he doesn’t know of any engineering company that has the experience to build such a complex pipeline.Management has a long history of misrepresentation. The Galore Creek project, once promoted as the company’s key asset, was quietly sold at a loss in 2018. In short, this is a stock promote, not a mining plan.
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Cartoon by Johannes Leak
LATEST REPORTS
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March 26 and April 4, 2020
GDS NASDAQDebt TrapGDS is a fraud. At least 25% of its revenue is fraudulent. Unlike most Chinese companies, GDS creates the fake revenue by round-tripping its own debt and capex. As GDS’s revenue line grows, so does the amount of debt it needs to raise to support the illusion.
In addition to round-tripping, GDS aggressively recognizes future revenues, a portion of which we believe will never be realized. Faked revenue comes without costs, so the ploy also increases reported EBITDA and reduces optical leverage. Using this and other strategies, GDS has persuaded investors to accept its highly customized metrics and argues that it will be the winner in a take-all market. That is simply not true. |
October 25, 2019
ENPH NASDAQRainy Days for EnphaseStuffed: We think that Enphase is pulling forward sales and stuffing distribution channels in order to make sales appear better than they are. We have analyzed industry reports and estimate that an amazing seven months of inventory is sitting in distribution channels, versus industry norms of about four to six weeks. We believe Enphase is losing market share in solar inverters.
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September 5 and 11, 2019
BGNE NASDAQNo CureWe think BeiGene has no future, and management knows it. We have clear evidence that the company is faking sales in order to persuade investors that it can develop a successful sales platform in China for pharmaceuticals; we suspect management may also be skimming R&D and capital budgets. At best, this is a poorly managed company pursuing commoditized drugs, with internal controls, even in the context of Chinese companies, that we find to be lax. At worst, BeiGene executives may be robbing shareholders.
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February 5, 2019
FANH NASDAQWho owns Fanhua? Not the U.S. Shareholders.Fanhua (FANH) is a U.S.-listed, China-based company that claims primarily to distribute insurance products. Before Q4 2017, most FANH income came from property and casualty insurance. In Q4, the company claimed to divest most of its P&C insurance business, as well as its insurance brokerage business. Currently, FANH is described in its disclosures as primarily a distributor of life insurance. Over the course of our months-long investigation, we concluded that Fanhua Inc. is nothing but a shell game among related parties that allows executives to loot investor cash.
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Opinions are intended to provide insight on macroeconomic issues and commentary is not intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy.
Investments involve risk. The value of investments can go down as well as up, and investors may not get back the full amount invested. The information contained in these reports has not been reviewed in the light of your personal financial circumstances. Reliance upon the information is at your sole discretion.
The reports and other commentary displayed are for information purposes only and should not be relied upon as investment advice. The information provided is not a complete analysis of every material fact regarding any country, region, or market. Because market and economic conditions are subject to change, comments, opinions and analyses are rendered as of the date of this posting and may change without notice.
Opinions are intended to provide insight on macroeconomic issues and commentary is not intended as individual investment advice or a recommendation or solicitation to buy, sell or hold any security or to adopt any investment strategy.
Investments involve risk. The value of investments can go down as well as up, and investors may not get back the full amount invested. The information contained in these reports has not been reviewed in the light of your personal financial circumstances. Reliance upon the information is at your sole discretion.