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Intellidex: Viceroy’s report on Steinhoff was ‘substantially plagiarised’

And the standard of its subsequent reports has been questionable.

Until the accounting issues at Steinhoff were uncovered, nobody in South Africa had heard of Viceroy Research. However, the report it released shortly after Markus Jooste’s resignation thrust it into the public spotlight.

The company appeared to have identified off-balance sheet transactions that Steinhoff had used to artificially inflate earnings. Its findings were widely reported and brought the firm a substantial amount of notoriety.

Read: Steinhoff skeletons emerge

However, on Thursday morning research house Intellidex released an analysis of Viceroy Research’s work, and argued that this reputation was built on research that the company had not done itself. According to Intellidex:

“The Viceroy report has striking similarities to a report produced by Portsea Asset Management, a London-based hedge fund registered with the Financial Conduct Authority, published on June 12, 2017, some six months before Viceroy’s publication,” Intellidex notes. “There are several tracts of text and several financial estimates that are verbatim, cut and paste from the Portsea report, and the general thesis and argument of the report are largely the same as Portsea’s.”

Intellidex backs this up by providing a number of examples of where the reports use very similar, and in some instances, exactly the same wording. Viceroy was given the opportunity to respond to the claim that its findings on Steinhoff were plagiarised, and the response from Viceoroy’s Fraser Perring was that:

“Viceroy is sent significant amounts of data anonymously, which of course may come from funds. In the case of Steinhoff, we received an e-mail with data pertaining to further information on an off-balance sheet entity, which we incorporated into our report, and transcripts of a call to IR suggesting that loans to these entities were made to ‘Chinese Suppliers’. We, of course, incorporated this into our own work.”

Intellidex does not find this explanation convincing, as the similarities are ‘far more than data’.

“Viceroy appears to suggest that this data was received anonymously,” Intellidex notes. “We find it curious, however, that all of Portsea’s data tables are marked as being ‘Portsea analysis’ while the Viceroy report versions, containing identical data, are sourced as ‘Viceroy analysis’. The reference to ‘transcripts of a call to IR’ is also curious considering that the reference in Viceroy’s report seems to be a reworded version of the Portsea comment on a call to IR. Viceroy’s response also seems to suggest that Viceroy relies on anonymous tip-offs which it does not seek to verify, but uses without disclosing that they were received anonymously. The reliance on unattributed and unverified information in reports in our view further compromises the quality and professionalism of the research.”

These similarities have previously been reported on in German media, but this had not been picked up by the English press.

The reputation that Viceroy was able to earn from its Steinhoff report has therefore followed it to the release of subsequent reports on other companies. In South Africa particularly, it published a report on Capitec at the end of January this year that had an immediate and significant impact on the bank’s share price.

Read: Viceroy takes aim at Capitec

However, Intellidex believes that this report had several problems, including unsubstantiated comparisons between Capitec and African Bank, and anecdotal and untested input from former employees.

“Seen in its entirety, it is our view that Viceroy’s Capitec report exhibits a failure of professional standards in research,” Intellidex notes. “It is not objective in that it cherry picks negative information, which it then interprets in the most negative way possible. It does not consider alternative interpretations of the same information, let alone positive aspects to Capitec’s performance. It fails to provide a reasonable basis for the conclusions that it draws. It provides no proper valuation of Capitec.”

This, Intellidex believes, is a feature of most of Viceroy’s research since the Steinhoff report. It argues that the company has produced research that selectively highlights available negative information, to support an convictions that are not well-founded.

“In our view, at least some of Viceroy’s research does not appear to represent well-founded and genuinely held beliefs of the writers,” Intellidex notes. “The purpose of the release of such research reports rather seems to be to manipulate market prices instead of the self-expression of genuinely held beliefs. However, we think it would be difficult to conclude that this amounts to illegal market manipulation as such a finding would turn on intent.”

Since a ‘significant proportion’ of Viceroy’s research appears to come from other, undisclosed sources, Intellidex raises the possibility that the firm has been playing a role for other institutional short sellers.

“The one common feature of the diverse range of targets Viceroy chooses is that there is always substantial interest from short sellers,” Intellidex points out. “Therefore there is a significant profit to be made on the short side in Viceroy’s targets, even if Viceroy is not making any of these profits directly through positions of its own.”

It adds that:

“The second value that Viceroy offers this community is as an outsourced carrier of legal risk. Some hedge funds are concerned about potential litigation that may follow from research they produce.

However, if a third party such as Viceroy acts as the publisher of the information then that legal risk is somewhat dissipated and deflacted.”

Intellidex was commissioned by Business Leadership South Africa to analyse short selling activities, particularly those of Viceroy.

UPDATE: Viceroy has since posted a response on its website, read it here.

The full Intellidex report is available here.

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About time that these fraudsters be called out for what they are

Looks like SNH will get financing after all. Friday, 20 July could be a BIG day for their share price

Short sellers provide a useful service to keep capitalism working. The markets might react on news, but that is not the fault of Viceroy or any other shareholder/speculators. Netflix CEO got it right when he thanked shortsellers but explained why they are wrong.

and both sides here:

I would encourage you to read the report. Intellidex agrees wholehearedly that short sellers provide a useful service. They are, however, less enthusiastic about the value of Viceroy’s research.

Short seller research is only valuable when it is accurate.

Short selling should be banned! If you want to hedge, go look for another proxie to buy!

You missing the plot. It is not about short sellers.

Elementary, my dear Watson.

You cannot sell what you don’t own – the so-called ‘Quant” traders are
just causing panic and volatility by the way they structure their trading strategies…they will soon start selling your house short, if they could!

Viceroy has now achieved a craze for notoriety, that methinks not even a ‘’village idiot’’ would be proud off, as methinks they tried to be ‘’noticed’’

‘’There is only one thing in the world worse than being talked about, and that is not being talked about’’
Oscar Wilde (1854-1900)

So does this all somehow make Steinhoff’s actions less serious, less costly?

Definitely not, does not change the fact that Steinhoff was Jooste’s Ponzi Scheme and “front” for him and his “inner circle” boytjies horseracing endeavours at the expense of shareholders and employees… “sick” minded individuals !

The question that I’d like to ask is why are people so quick to criticise the quality of research on the short side, yet no-on is asking the same questions of research on the long side?

“We believe in the strong management team and that is why we are buying the company” many managers on Steinhoff before they went bang! Adhering to professional research standards and due diligence????? I think not!

Why are the same questions being asked on the long side. For too long have the right questioned not been asked of our active community, rather we just trust that they will deliver. Its pathetic, some of the quality of research on the long side is even worse than what Viceroy has been accused of!

The market is made up of buyers and sellers, if managers had done their due diligence and had conviction in their positioning, a viceroy report would be a perfect opportunity to load up and squeeze them out!

SA Managers have been complacent with mediocrity raking in the fees – for what?

Correct…the “long” research were poor the last 3 years. Many of it looked like cut copy and paste documents. Still waiting for Naspers to rally to R5000…?? out for R2400 first.

Does note matter if it is Viceroy, Old Brown Sherry or J&B that did the short research…read the doc and make up your own mind if you are an investor.

I’d listen to a short-seller any day, because quite simply, I understand why they exist and what they are trying to do.

I think smart and informed people listen to short-sellers,anyone else should stick to giving their money to extremely qualified and educated but extremely under performing underachiever fund managers and asking for investment advice on forums, they deserve each other.

People that don’t accept and deny short-sellers are incapable of accepting the truth. You don’t want to vibe with them.

I love how the sentiment is swinging. About GD time.

However, it is quite common knowledge that their report was plagiarised. Really dislike the way Viceroy go about their business, but short sellers are healthy.

However, their work has been proved to be shoddy at times, an they are just being fed by some insiders.

Love how Albie Cilliers and JSE School Bus are crying like little babies on twitter right now. The wheel turns boys. Get in to Steinhoff now or see you later. We’ll see R8-R10 before the year is over.

Always said that Perring and Viceroy is not the real “shorters” of Steinhoff…They were used to hide the real hedge fund behind the transactions

SA investors need to grow up! Shorts are a normal element of an efficient market. Consider for a brief moment the other side:

Our companies put out AFS that are glowing PR pieces filled with 50 – 100 pages of unsubstantiable nonsense footnoted by small print. Compare the typical local report to the real meat in a US listed 10K or in their quarterly 10Q. The 10Q and 10K come armed with federal jail time when the SEC comes and takes a look.

In any event, management are the ultimate long-only blinkered source of information.

The other source of information for investors is the ‘research’ that the funds and brokerages put out on their positions. They talk their own book (ask a parent how well their child does) from a naturally biased position of having placed long bet already. Who expects eg Coronation to come out with a a research report that basically says : our equity fund has invested R20,000,000,000 in Acme Trading but on second thoughts we have now decided this is a floater and advise clients not to touch it. Neither should we expect that Coronation will first put put an adoring research paper on Steinhoff or African Bank and then later on start buying. Their reports are post decision, just like shorts – talk the book after printing it.

So the long professional investment community is just another blinkered source of information.

Take a look at Steinhoff and Capitec short positions before their corrections. I think both were in the region of 30% held short, might be wrong. So a HUGE proportion of all those loyal strategic longterm investors must have quietly been lending out their script.

Provided publishers of opinions state their position (long / short), all information is food for investors to consider.

It’s about price discovery or what is the NPV of the company. In the case of Steinhoff it is close to zero and the short sellers were correct. Being a short seller is not easy. Time will tell whether Viceroy got “lucky” with Steinhoff or they have some special skill in identifying potential shorts.

Vicerory is just a stalking-horse for short funds. The fact that they are too bloody lazy to pretend not to plagiarize doesn’t change the actual message. Steinhoff were simply white-collar gangsters and frankly Capitec are too. The effect of Capitec being found out to have covered their short-term losses via longer-term debt to defaulting debtors will cause even more “For Sale” signs to go up in De Zalze and other overpriced Boere-Disneys

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