🐻The Bear Cave #60🐻

New Activist Reports, What to Read, and Tweets of the Week

Apr 05, 2021

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New Activist Reports

New activist Jehoshaphat Research published a 70-page report on Amdocs (NASDAQ: DOX — $9.49 billion), an Israeli communications software company. Jehoshaphat conducted “a months-long investigation into what we believe is a massive financial deception” and alleged that profits were overstated by 40-50%. In addition, Jehoshaphat highlighted tax payments inconsistent with Amdocs’s stated financials and wrote,

“We found wildly overstated profit margins, a balance sheet that is far from the cash-rich fortress it appears to be, and a revolving door of company auditors resigning from their posts in multiple countries. These enormous discrepancies between DOX’s true business health and the mirage that is its reported finances simply do not reconcile.”

Amdocs has had the same CFO for the last 17 years and in February 2020 received a comment letter from the SEC concerning its incorrect accounting regarding its non-GAAP metric “normalized free cash flow.” In response, the Amdocs said,

“the Company respectfully submits that it intends to remove ‘Normalized Free Cash Flow’ from its annual reports on Form 20-F for future fiscal years and other reports filed with the Commission.”

The SEC letter was authored by Davis Polk & Wardwell LLP, a law firm that employs two former SEC Enforcement Directors and a former SEC Commissioner.

Kerrisdale Capital published a 3-page report on Tencent Music Entertainment Group (NYSE: TME — $32.3 billion), a leading music streamer in China. Kerrisdale wrote,

“Archegos Capital liquidated 50m shares of TME last week, a colossal sum 4x the average daily volume, sending shares into a 40% tailspin as the market absorbed this supply. We believe this presents an opportunity to acquire a leading global asset undergoing a transformation away from its decelerating livestreaming business to a subscription-based music streaming model.”

Kerrisdale also highlighted a $1 billion buyback instituted by Tencent Music. Kerrisdale separately joked about launching a SPAC on April 1.

White Diamond Research published positively on ZK International (NASDAQ: ZKIN — $232 million), a Chinese stock and cryptocurrency platform.

What to Read

“Why Goldman Unsurprisingly Avoided Archegos Losses” (SL Advisors)

“David Pflug later commented on the glittering mathematicians of LTCM, ‘for all their knowledge of Greek, they didn’t understand the meaning of hubris.’”

“Swiss Billionaire Joins the Bidding for Tribune Publishing” (NYT)

“The philanthropist Hansjörg Wyss has teamed with the Maryland hotel executive Stewart Bainum in a bid to upend Alden Global Capital’s plan to acquire the newspaper chain…”

“Black Cube Was Paid ‘Large Amount of Money’ to Improperly Discredit Judge, Court Rules” (WSJ)

“Israeli investigative group was hired by private-equity firm for effort code-named ‘Project Maple Tree’ to embarrass Canadian judge, Ontario court finds”