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Viceroy warns against speculation as Reits dive

Property stocks rumoured to be on Viceroy hit list.

Viceroy Research has advised “caution in trading on gossip” as rumours swirl that a South African real-estate investment trust (Reit) would be the subject of one of its now infamous research reports.

The speculation sent South African property stocks on a wild ride on Thursday, with the SA Listed Property Index falling by as much as 8.5% to an intraday low of 596.75 before paring its losses to close 2.18 % lower at 637.37.

Property has a wild ride

Garreth Elston, an analyst at Golden Section Capital, said much of the panic selling was targeted toward the Resilient stable of companies. “At the moment, it is unclear what is causing the selloff. There are rumours that it may be a potential Viceroy target but that is pure conjecture – I haven’t seen or spoken to anyone that has seen evidence of a report. But since the Viceroy report on Steinhoff, the market is skittish and is trying to get ahead of it.”

Viceroy gained prominence after publishing a damning report on Steinhoff, shortly after the retailer announced accounting irregularities, which sent its shares into free fall in December 2017.

It has since tweeted that it was working on a report on a South African company, which sent the rumour mill turning and stocks plummeting. First Aspen took a dive on Tuesday, prompting the pharmaceutical group to say that it had not engaged with Viceroy nor was it aware of the rumoured report.

According to Elston, the lens has since turned to the Resilient stable of companies as they appear overvalued in relation to their global peers. He said that there are questions as to whether the stocks should trade at the premiums that they do but the bulk of the South African market is pleased with its consistent level of delivery. He said it is likely that an offshore hedge fund, which may not be aware of the domestic market and its dynamics, is mounting a raid on the stocks as they appear out of whack with their peers.

Elston also dismissed speculation related to the firm’s accounting practices. “There is nothing in the public domain that would suggest wrongdoing or that made me question the legality of what they do. Are they aggressive? Do they chase deals? Yes. Do they do anything illegal? There’s nothing to suggest that they don’t stick to financial regulations.

“People are emboldened after Steinhoff but this is not a Steinhoff,” he told Moneyweb.

Resilient, in a voluntary trading update, said its dividend per share for the six months ended December 31 2017 would be 13% to 13.5% higher at between 305.35 cents per share and 306.70 cents per share.   

Fortress too issued a voluntary trading update, stating that its interim dividend per B share would be between 89.99 cents and 90.77 cents, up 14.5% to 15.5% from previously.  

Some analysts approached by Moneyweb were unwilling to comment on property stocks due to a lack of detail.

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With Marcus Jooste’s connection to Phumelela, this could be the company next investigated!

The property companies in general share a common set of problems for analysis:

1. Very big chunk of earnings stem from the annual revaluation of the property portfolio. ie not backed by cash.

2. Very high activity in buy and sell of properties and debt refinance.

Wildly varying degree of substantive information. Some give full detail per property on occupancy, income, expenses, how long under lease, etc. others are a big black hole

Noseweek has reported over the last seven years about Resilient, Fortress, Capital and Pangbourne (the last two subsequently absorbed by Fortress)and possible fraud involving these inter-connected companies and many of their directors. In typically slow SA legal process this matter is still dragging on, as far as I’m aware.

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