Shock report reveals Steinhoff nemesis Viceroy's feet of clay
'The quality seems to fluctuate from detailed and coherent valuation models … to reports that rely on anecdotes and ad hominem attacks'
Viceroy, which burst onto the public scene after its report in December flagged irregularities at disgraced retailer Steinhoff International, plagiarised its way to influence.
The short-seller, which was founded by a British former social worker, is little more than a communications agent for a number of hedge funds who profited from the negative publicity it generated, according to a report commissioned by Business Leadership SA (BLSA).
BLSA felt it necessary to commission the report on short selling as "part of our broader role of facilitating an understanding of how our financial markets operate in the era of fake news", CEO Bonang Mohale said in an interview with Business Day on Wednesday.
Methods and agenda
The business lobby, whose members include some of the biggest names in corporate SA, hired research company Intellidex to investigate Viceroy’s methods and agenda.
The firm has been accused of using its research to destabilise companies in which it had taken so-called short positions, aiming to profit from the subsequent decline in the share price. It fuelled a slide in the shares of Capitec Bank earlier in 2018 when it released a report alleging reckless lending by the microlender. Shares in Capitec, which is a member of BLSA, have since stabilised after regulators including the Reserve Bank cleared it of wrongdoing.
Viceroy "substantially" plagiarised the work of London-based Portsea Asset Management that had issued its own report on Steinhoff six months prior to Viceroy publishing its work, Intellidex said.
"A study of the two reports reveals the extent of the plagiarism. In some cases entire sentences and tables were copied, while there is not one reference to the work of Portsea in the Viceroy report," said Stuart Theobald, Intellidex chairman and lead author.
"So we think the influence Viceroy has garnered in our local market is misplaced" and given "some of the other findings we made, we anticipate Viceroy’s influence will decline", he said.
In response, Viceroy said that "it is sent significant amounts of data anonymously, which may come from funds. In the case of Steinhoff, we received an e-mail with data pertaining to further information on an off-balance sheet entity which we incorporated into our report."
The Intellidex report goes on to describe the "varied and prolific" nature of the research Viceroy has published since its inaugural report on Australian-listed Syrah Resources in December 2016.
It questions how the three partners, who have limited experience in financial markets, could expertly analyse the breadth and number of companies they have in the roughly one and a half years the firm has been active.
"The quality seems to fluctuate from detailed and coherent valuation models leading to robust conclusions on a company’s value, as was the case with Syrah Resources, to others where the reports rely on anecdotes and ad hominem attacks on management, like that employed in parts of the Capitec report," Theobald said.
Intellidex noted a declining trend in the quality of Viceroy’s reports, concluding that a significant portion of the work was drawn from other sources, particularly funds and short-sellers – a fact it did not disclose.
When Intellidex asked Viceroy which regulators they were registered with, Viceroy said they were "beholden to regulators", but never stipulated which ones.
"Exactly how Viceroy is compensated remains unclear," Theobald said.