The Bear Cave #154
New Activist Reports, Recent Resignations, and Tweets of the Week
Welcome to The Bear Cave! Our last premium articles were “Problems at Planet Fitness (PLNT)” published on January 19 and “The Best Stock Research Tools for 2023” published on January 26. The next premium investigation comes out this Thursday, February 2.
New Activist Reports
Hindenburg Research published a 32,594-word investigation into the Adani Group, a collection of seven publicly traded Indian infrastructure companies controlled by the world’s third richest man, Gautam Adani. Hindenburg alleged that dubious offshore funds tied to the Adani Group are often the largest non-management shareholders of the Adani companies. For example, Adani Transmission Limited is 74.19% owned by its management group, right below the 75% limit imposed by Indian regulators. However, Hindenburg found that at least 10% of the company’s stock is also held by “suspect holders” that may be funded by the Adani Group. This leaves an increasingly small public float that can be manipulated to inflate the Adani Group’s value.
Hindenburg highlighted numerous other red flags. For example, Adani Enterprises Limited has had five different CFOs over the last eight years and the audit firm for some Adani Group companies “seems to have no current website.” Moreover, Hindenburg wrote that the Adani Group companies “have 85% downside purely on a fundamental basis owing to sky-high valuations” largely due to huge share price increases over the last few years.
Hindenburg also disclosed, in part,
“After extensive research, we have taken a short position in Adani Group Companies through U.S.-traded bonds and non-Indian-traded derivative instruments.”
The Adani Group’s first statement on the report said the Adani Group was “shocked Hindenburg Research published without any attempt to contact us or verify the factual matrix.” A second statement called the report “maliciously mischievous” and alleged it “led to unwanted anguish for Indian citizens.” The Adani Group’s second statement ends,
“We are evaluating the relevant provisions under US and Indian laws for remedial and punitive action against Hindenburg Research.”
Hindenburg responded, in part, that “any legal action taken against us would be meritless.”
Culper Research published on Xometry Inc (NASDAQ: XMTR — $1.55 billion), an industrial parts marketplace for manufacturing projects. Culper called the company “the Pets.com of manufacturing” with “deeply unprofitable and rapidly deteriorating unit economics,” partially concealed by a recent acquisition. Culper concluded,
“We think this already unviable business has simply unraveled. Insiders have sold $45M in stock since IPO lock-up expiry through today. We're with them, and we are short.”
Viceroy Research published on Medical Properties Trust (NYSE: MPW — $7.82 billion), a Birmingham-based REIT that owns hospitals typically in long-term sale-leaseback transactions. Viceroy said that “substantially all of MPW’s major tenants appear distressed” and alleged that Medical Properties Trust provides CapEx assistance to tenants on triple-net leases and would “collude with tenants to establish ‘fake’ projects in order to siphon money” towards distressed tenants. Viceroy wrote that Medical Properties Trust has “enormous credit risk” and “will have no choice but to significantly cut dividends.”
In October 2022, The Bear Cave published on the company and highlighted a “haphazard assortment of issues including distressed tenants, dubious representations, excessive spending, potential auditor independence issues, and a perplexing undisclosed entity for property management.”
J Capital Research published on Full Truck Alliance (NYSE: YMM — $9.62 billion), a Chinese digital trucking platform. J Capital alleged the company had “hallmarks of notorious Chinese round-tripping schemes” and said the company’s transactions “might be overstated by 6-10X.” J Capital conducted 36 interviews with former employees and industry insiders and added, in part,
“Former salespeople have told us they set up shell companies to churn bank loans back and forth. These boomerang transactions would create the appearance of rising transaction volumes. The cash ultimately appears to get routed back.”
The company fell roughly 10% this week and has fallen ~55% since its June 2021 IPO.
Overlooked Alpha published on MeridianLink (NYSE: MLNK — $1.28 billion), a loan and mortgage origination software platform primarily used by credit unions. Overlooked Alpha raised concerns about the company’s reliance on M&A and decelerating growth. The Thoma Bravo-backed company is down ~35% since its July 2021 IPO.
Recent Resignations
Notable executive departures disclosed in the past week include:
CFO of Hyzon Motors (NASDAQ: HYZN — $538 million) resigned after ten months. Blue Orca Capital previously called the company “a Chinese Lordstown Motors” and the company’s CEO departed in August 2022. Hyzon stock is down ~80% since its July 2021 SPAC merger.
CFO of Eos Energy Enterprises (NASDAQ: EOSE — $111 million) “will step away from day-to-day operations due to family health reasons” after one year. The company’s prior CFO resigned after just one and a half years and Iceberg Research previously criticized the company for “fake customers” and dubious technology. The company is down ~90% since its November 2020 SPAC merger.
CFO of Vertical Aerospace (NYSE: EVTL — $454 million) resigned after a little over two years. Three of the company’s board members have also resigned in the last six months and the company is down ~80% since its December 2021 SPAC merger.
CFO of AdTheorent (NASDAQ: ADTH — $162 million) resigned after almost three years. The company is down ~80% since its December 2021 SPAC merger.
CEO of Bank of South Carolina Corporation (NASDAQ: BKSC — $90 million) “will begin preparing for his transition into retirement” after nearly twelve years. The company’s 38-year-old CFO will be promoted to CEO and will report to the company’s 19-person board.
Chief Operating Officer of Hasbro (NASDAQ: HAS — $8.09 billion) departed after one year as part of “leadership and organizational changes, including the elimination of approximately 15% of [the company’s] global workforce this year.”
President of Americas Division for Enerpac Tool Group (NYSE: EPAC — $1.47 billion) resigned “to pursue an external opportunity” after one year. The company’s Principal Accounting Officer also resigned in November 2022 and the company’s CFO departed in April 2022.
Chief Revenue Officer of PagerDuty Inc (NYSE: PD — $2.65 billion) “is leaving the company to pursue other opportunities” after three years. The announcement was part of a 1,669-word letter to employees from the company’s CEO announcing layoffs for 7% of the workforce. The letter concludes,
“I am reminded in moments like this, of something Martin Luther King said, that ‘the ultimate measure of a [leader] is not where [they] stand in the moments of comfort and convenience, but where [they] stand in times of challenge and controversy.’ PagerDuty is a leader that stands behind its customers, its values, and our vision…”
Data for this section is provided by VerityData from VerityPlatform.com
Podcast Appearance
The Bear Cave had the great privilege to be interviewed by Adam Taggart on the Wealthion podcast this week. Check out the awesome interview here:
What to Read
“Where Fraud Lives and Why” (The Diff)
“But what if fraud is cyclical, but not purely so, and Arthur Anderson’s collapse just part of a cycle within a secular trend towards less fraud? There are good reasons to think that accounting fraud at US public companies is not as common as it used to be. The equilibrium for fraud is set by two forces: how rewarding it is for companies to engage in it, and how rewarding it is to catch it…”
“A Negative Stock Report About Indiabulls Led to an Analyst’s Arrest and a 2,000-Mile Odyssey” (2015 WSJ)
“When stock analyst Nitin Mangal co-wrote a research report in August 2012 telling investors to sell shares in companies that were part of the Indiabulls Group, a big Indian real-estate and financial conglomerate, he figured the company wouldn’t like it. He didn’t expect what happened.
More than two years after his report appeared, police arrested Mr. Mangal last November and took him on a five-day trip to two Indian cities, accompanied by an Indiabulls lawyer. The purpose of the trip, police say, was to gather evidence related to alleged defamation and other accusations tied to his research report.”
Tweets of the Week
Until Thursday,
The Bear Cave