🐻The Bear Cave #21🐻

New Activist Reports, SPAC to Watch (ACEL), Tweets of the Week, Meet Me in NYC!

Jul 06, 2020

Welcome to The Bear Cave — your weekly source of short-seller news. Feedback and sharing are always appreciated. If you are new, you can join our email list here.

New Activist Reports

Hindenburg Research published a blockbuster report on J2 Global (NASDAQ: JCOM — $2.94 billion). J2 issued a substantive response to the Hindenburg report, which was later revised. In the updated report, Hindenburg wrote,

“[We] believe J2’s opaque acquisition approach has opened the door to egregious insider self-enrichment, which we approximate totals $98 million to $128 million based on publicly available information… This state of affairs has been permitted by a lack of truly independent board oversight and a sleepy auditor.”

In addition, J2 has faced scrutiny in the past from Citron Research (report) and GlassHouse Research (report). The SEC also sent J2 a letter in 2016 about “reconciliation of GAAP to non-GAAP financial measures inconsistent [with] updated Compliance and Disclosure Interpretation Guidance.”

Spruce Point Management issued a “Strong Sell Opinion” on Prestige Consumer Healthcare (NYSE: PBH — $1.82 billion), “a roll-up of orphaned brand named, over-the-counter healthcare products.”

Biotech Research Partners published on Applied Therapeutics (NASDAQ: APLT — $733 million) in a report titled, “Spin the Wheel of Red Flags.”

Muddy Waters Research shared an anonymous letter that was sent to the auditor of the Chinese education company, GSX Techedu (NYSE: GSX — $15.1 billion).

JCAP research published an update on Australian software company WiseTech (WTC AU — AUD$7.08 billion).

SPAC to Watch: Accel Entertainment

Special Purpose Acquisition Companies (SPACs) are investment vehicles formed to do a big acquisition. Academic studies have found SPACs, in general, chronically underperform the overall market with one study finding average first-year returns of negative 33% (Page 28).

One SPAC-formed company that has my attention in Accel Entertainment (NYSE: ACEL — $727 million). Accel Entertainment operates ~11,000 video game terminals in Illinois and went public via a SPAC in late 2019.

From my perspective, Accel is an indebted roll-up of video game terminals. These game terminals are generally located indoors, in bars and restaurants, and only accept cash.

For a flavor of how coronavirus will affect Accel just look at its Q1 earnings. For the three months ended March 31, 2020, Accel lost $2 million compared to a $4 million profit for the same three months in 2019.

Even in good times, Accel was not particularly profitable, with GAAP net income of approximately $13 million in the last three years combined.

I believe fewer customers will be eating in restaurants/bars and very few of those that do will go play on gaming terminals inside. It just is not a COVID-friendly activity. The market does not seem to agree and Accel stock is down only 10% since its late 2019 public listing. One potential catalyst could be Accel’s Q2 earnings, likely in August.

Accel currently has $167 million in cash and approximately $400 million in debt due within the next five years.

Meet Me in NYC

I will be in New York City Monday, July 13 through Friday, July 17, and want to meet you! I am a recent college grad very passionate about investing and short-selling. If you would like to meet just hit reply to this email. (I am happy to do meetings outdoors and/or with masks.)

If you want to know more about me you can read some of my past research here and here.

What to Read

“Coffee’s for Closers: How a Short Seller’s Warning Helped Take Down Luckin Coffee” (WSJ)

“Recipients of the anonymous report got it from an email address containing the phrase “coffeeforclosers.” Its author signed off as “GLEN,” according to a copy of the email obtained by The Wall Street Journal.”

“Cub Investors, Taking Cues From YouTube Gurus, Help Hoist Korean Stocks” (WSJ)

“Park Jung-hyun, who goes by the screen name “Ho-du,” has built a following of more than 163,000 people on YouTube after filming himself trading U.S. oil futures, with one subscriber calling him “the president of foreign futures.” The 40-year-old influencer is sponsored by an online securities firm, and by a restaurant chain specializing in fried chicken.”

“A 28-Year-Old With No Degree Becomes a Must-Read on the Economy” (Bloomberg)