The response from two local targets of Viceroy Research’s now infamous reports – Steinhoff and Capitec – could not be more different. Of course, the contexts around the release of these were different and a bank is a very different animal to a highly-leveraged discount retailer with a model that was starting to make increasingly less sense.
However, one can’t help but wonder if Steinhoff’s head-in-the-sand approach exacerbated its share price collapse and (considerably) widened a clear confidence gap.
The Viceroy report on Steinhoff was released when the company was already in crisis: it had notified the market on December 4 2017 that audited results would not be released on schedule, and on December 5 2017 (published on Sens on December 6 2017) that CEO Markus Jooste had resigned with immediate effect.
By Viceroy’s own admission, it had not planned on releasing the report quite when it did. Obviously, timing worked in the outfit’s favour and, not only did it likely make a fortune shorting Steinhoff, it was propelled into the spotlight.
To date, Steinhoff has not mentioned the report, or even referenced it obliquely. The market has been fed scraps, amid what was clearly a huge amount of upheaval (and indecision?) at board and executive level. Count the number of changes over the past two months as well as former CFO Ben la Grange’s merry-go-round of roles (Read: The curious case of Steinhoff’s Ben la Grange).
These bland statements from Steinhoff, often with very little new information, are not new. This has been its ‘style’ for many years, certainly since I started following it in the late oughts… (Arguably, it’s become more ‘open’ as it geared up for and subsequent to the Frankfurt listing).
However, it’s strange practice of providing more detailed updates to lenders (not shareholders) during this crisis, with only references to these presentations announced to the market is new. Even in these presentations, the amount of information is meagre.
Steinhoff presentation to lenders is here:https://t.co/X41FTUfafe
As someone said, there's an awful lot of white space. One slide contains only 6 words: "Poco continues to be self-sufficient"
— Karin Richards (@Richards_Karin) January 26, 2018
Directors (both executive and non-executive) went to ground, with the only real ‘engagement’ with the media coming in late January in a Financial Mail exclusive (behind BusinessLIVE’s paywall).
Major shareholder Christo Wiese, who was only conflicted while he assumed the temporary role of acting CEO for a week in December, has been completely silent. The company argues – as it did to parliament yesterday – that it is constrained in what it can say (of course it is). But pretending certain things simply don’t exist – like a well-publicised report – is not a great communication strategy.
Contrast this with the responses from Capitec Bank on Tuesday, following the Viceroy report release. The report was publicised on Viceroy’s Twitter account at 09:45, with a Bloomberg TV interview at 10:30 (SA time). Within two-and-a-half hours (at 12:07), Capitec released an announcement to the market via Sens providing context to how and when it had obtained the report. It also countered the report with a strong statement: “On the face of it, the report is filled with factual errors, material omissions in respect of legal proceedings against Capitec and opinions that are not supported by accurate information”.
Crucially, it noted that it was “reviewing the report in detail” and undertook to “respond to it in detail” later that same day.
The response, which Capitec describes as “addressing the main issues raised in the report” was announced on Sens at 16:35, before the market closed. That the bank had managed to provide this level of detail to the market in response to Viceroy’s allegations within seven hours ought to be applauded by all market participants.
Further, it also held a conference call with investors during the afternoon led by CEO Gerrie Fourie and CFO André du Plessis, and announced this to the market via Sens as well (at 17:40). A replay of the call is available (and the audio file is on the bank’s investor relations webpage for download). This is completely transparent and nothing is being withheld from shareholders.
Capitec’s largest shareholder, PSG Group (which owns 30.7%), issued a very strong statement of its own to the market (at 16:40, just after Capitec’s detailed response).
In it, it said “PSG Group fully supports the Capitec management team and business model. Capitec’s corporate governance is undoubtedly world class. Its continued transparency and ability to release its audited year-end financial results within a month after the reporting date, bear testimony thereto”.
It also called into question the report’s “factual errors and misleading information regarding Capitec”. Not stopping there, PSG said: “Viceroy’s report contains irresponsible statements creating unwarranted market turmoil. PSG Group will consequently ensure that an investigation be launched into such conduct, including trading in both PSG Group and Capitec shares in the period leading up to the release of Viceroy’s report”.
Non-executive director JP Verster also engaged widely, answering questions on Twitter and appearing on Business Day TV’s Stock Watch on Tuesday evening.
And, given the well-founded concern of a run on a bank, the South African Reserve Bank quickly issued a clear statement confirming that “according to all the information available, Capitec is solvent, well capitalised and has adequate liquidity. The bank meets all prudential requirements”.
These proactive moves allowed Capitec to get ahead of speculation, rumour and conjecture. The share price rollercoaster during the trading day on Tuesday provides some evidence of that.
Rumoured Viceroy ‘targets’ Aspen Pharmacare and Resilient Reit also acted swiftly when there were some ‘strange’ and ‘sudden’ share price movements in mid-January.
Pretending to be an ostrich and treating shareholders with a fair amount of contempt does not turn out well. Ask Steinhoff.
This is not an argument for or against the contents and allegations made in either report (or of those being flung around on social media by experts and “experts”). There’ve been hundreds of thousands of works expended on that already.
And, in time, the market will ultimately decide.
- Hilton Tarrant works at immedia. He can still be contacted at email@example.com.
- He holds shares in Steinhoff International, first acquired in September 2010.