The Bear Cave #179
New Activist Reports, Recent Resignations, and Tweets of the Week
Welcome to The Bear Cave! Our last premium articles were “Problems at Applied Digital (APLD)” and “Problems at Hershey (HSY)” and our next premium investigation comes out Thursday, August 3.
The Bear Cave also had a great recent guest podcast appearance with Kosta Ristovski, where we discuss our history, our research process, and our plans for the future. It’s one of our favorite interviews yet and is available here!
New Activist Reports
Viceroy Research published on Hexagon AB (Stockholm: HEXA-B — SEK305 billion), a Swedish engineering and technology group. Viceroy called the company “a corporate dictatorship” and alleged a series of ethics, governance, and accounting failures. For example, Viceroy alleged that multiple members of Hexagon management, Hexagon board members, and some Hexagon suppliers all invested in Greenbridge Limited, an investment vehicle that would front-run investments later made by Hexagon. Viceroy also alleged the company “egregiously overstated” organic growth and had insufficient goodwill adjustments for dozens of acquisitions.
Viceroy concluded,
“We believe a valuation of Hexagon shares is a futile exercise. There is not enough information and transparency from management to conduct any meaningful valuation analysis. We believe HEXA-B presents significant downside.”
NINGI Research published on Runway Growth Finance (NASDAQ: RWAY — $504 million), a BDC focused on late-stage venture capital funded companies. NINGI Research alleged that “the company’s reliance on high-risk payment-in-kind loans, coupled with significant cash shortfalls and a decline in loan originations, jeopardizes its dividend strategy and long-term viability.” Specifically, NINGI Research noted that Runway Growth’s payment-in-kind interest income from distressed borrowers has increased roughly eightfold in the last two years and, as a result, the company’s cash income is less than its dividend.
Jehoshaphat Research published on Service Corporation International (NYSE: SCI — $10.1 billion), a funeral services and cemetery company. Jehoshaphat wrote that Service Corporation International “charges well-above-market prices” and historically “price discovery has been abysmal” because most funeral and cemetery providers don’t provide quotes online. However, Jehoshaphat highlighted that new rulemaking by the FTC to modernize funeral home price disclosures will lead to more price discovery and pressure Service Corporation International to lower prices.
Recent Resignations
Notable executive departures disclosed in the past week include:
CFO of XPO Inc (NYSE: XPO — $7.63 billion) “is stepping down to rejoin a former colleague” after just nine months. The company has had five CFOs over the last five years.
CFO of Southern Missouri Bancorp (NASDAQ: SMBC — $486 million) resigned after a little over one year “to pursue other interests.”
CFO of Hamilton Lane (NASDAQ: HLNE — $4.67 billion) resigned after three and a half years “to pursue other interests.” The company’s Principal Accounting Officer also resigned in April “to pursue another opportunity.”
CEO of Cracker Barrel Old Country Store Inc (NASDAQ: CBRL — $2.13 billion) “will step down” after 12 years and entered into a modified employment and transition agreement. The company’s Vice President of Supply Chain also “ceased serving” in February and the company’s Principal Accounting Officer resigned in October “to pursue another professional opportunity.”
Chief Operating Officer of Trinseo PLC (NYSE: TSE — $628 million) was “terminated” after one and a half years. In addition, the company’s Vice President of Engineered Materials and Vice President of Feedstock both “will be leaving the organization to pursue other opportunities” as part of an internal restructuring. In June, two board members also declined to stand for re-election.
Chief Revenue Officer of GitLab (NASDAQ: GTLB — $7.64 billion) resigned and entered into a “service continuation agreement” after five years. The company’s Principal Accounting Officer also retired in June and the company’s Chief Technology Officer resigned in October 2022 after just one and a half years.
Regina Ingel, Chief Marketing Officer of Applied Digital (NASDAQ: APLD — $741 million), “commenced an agreed-upon status of paid time off, without access to company communications or systems, pending resolution of the previously announced issue relating to Ms. Ingel’s employment with the company.” The previously announced issue appears to be related to what the company called “a threat, but not a formal assertion, of a sexual harassment claim.”
The Bear Cave previously published on Applied Digital and said the company “relies on puffery over substance and is a perfect case study on our market’s bizarre underbelly of reverse mergers, microcaps, and shell companies.”
Data for this section is provided by VerityData from VerityPlatform.com
What to Read
“A $236 Billion Stock-Market Enigma” (WSJ)
“Between 2019 and 2022, an obscure Abu Dhabi stock surged more than 400-fold to become one of the most valuable companies in the Middle East. This year, the shares are going nowhere—and once again turning heads… The stock has barely budged this year, even as some of IHC’s big, publicly listed holdings such as Alpha Dhabi, Multiply Group and Q Holding have fallen more than 20% each. It trades at a price of roughly 55 times reported earnings: more than double the average PE ratio for the S&P 500.”
“AT&T Shares Fall to Lowest Price Since 1993” (WSJ)
“Telecom stocks continue slide after WSJ investigation into toxic lead cables… Journal testing found numerous cables leaching lead into soil and water at levels exceeding regulatory safety guidelines. Wall Street analysts have since raised questions about liabilities related to the cables and the potential impact on companies’ bottom lines.”
“Countrywide's VIP Loan Unit ‘Targeted’ Fannie Mae Employees” (Wayback Machine)
“Documents show that dozens of Fannie Mae employees accepted VIP loans and VIP treatment from Countrywide. According to investigators, Countrywide's VIP treatment could range from special handling of customer phone calls to discounted loan rates worth thousands of dollars on a loan.”
“Unmasking Deception: A Comprehensive Guide for Long-Term Investors to Detect Fraud” (Gabriel Grego Presentation)
“Excessive revenue per employee or decreasing headcount despite strong revenue growth can be suspicious… Explore discrepancies between online visibility (website visits, social media presence) and claimed business performance.”
Tweets of the Week
Until next week,
The Bear Cave