Listed property company Nepi Rockcastle last week became the third target of a report by controversial research firm Viceroy. Unlike its Steinhoff report, though, the reports on Capitec and then Nepi appear to have come up short on credibility — raising more questions about what the firm’s true motivations are.

Despite having its Capitec report debunked by the bank and failing to persuade the market of its merits (Capitec’s share price is now higher than at the time of the Viceroy report), Viceroy has again tried to strike fear into the hearts of local investors with its latest report, accusing Nepi of drastically overstating profits from its Romanian subsidiaries.

Nepi is the product of a merger between two companies that came out of the Resilient stable. The company operates primarily in Eastern and Central Europe, with over half its net rental and related income being generated in Romania.

Viceroy’s bluster appears to have worked, initially. Nepi’s share price fell 14% on the day the report was published, wiping R9bn from its market value and evoking an incensed reaction from the company. "It’s similar to shouting ‘bomb’ after having boarded a plane," says Nepi CEO Alex Morar.

Viceroy accessed individual filings for each of Nepi’s subsidiaries in Romania and compared the cumulative results to the consolidated numbers in Nepi’s annual report. Property companies like to "ringfence" individual properties from others in the group by holding each property in its own company.

Based on its analysis, Viceroy estimated that the "true" loss before tax for 2017 amounted to approximately €41m. But Nepi’s 2017 annual report shows a profit before tax of €284.8m from its Romanian operations, leading to a difference of about €325m.

Morar’s rebuke was swift.

"Viceroy claims it sees the world differently. We can certainly agree on that. We have never been contacted by Viceroy and this has led to conclusions that are misinformed.

"I accuse it of manipulating information for its own benefit," he says.

The company points to the difference between the way the books are prepared for the annual report (in which international financial reporting standards are applied) and the Generally Accepted Accounting Principles used in Romania at the individual subsidiary level.

"Viceroy’s claim that Nepi Rockcastle’s earnings figures are overstated is blatantly incorrect," it says.

Nepi provided a reconciliation for the apparent discrepancy, showing the differences were attributed to the way the value of properties is accounted for, how depreciation is applied, the treatment of interest incurred when developing properties, and the accounting of foreign exchange gains and losses.

"Viceroy’s report appears to have cherry-picked perceived issues in order to try to paint a bleak picture, where none actually exists," says Garreth Elston, a portfolio manager at Reitway Global, which specialises in offshore real estate property funds.

Viceroy itself came under attack in September, when research firm Intellidex accused it of plagiarising its earlier report on Steinhoff. Intellidex also questioned how the company is compensated for its work.

Its critics suggest that it benefits from "short and distort" campaigns, essentially building a "short" position in a company ahead of a report designed to be as dramatic and sensationalist as possible, so as to engineer a big move in the price of the underlying shares before quietly exiting its position.

In evaluating this claim it is worth highlighting an important point about the way Viceroy conducts its analysis. It chooses not to engage directly with the company on the issues it discovers, which in the case of Capitec and Nepi would have avoided misconstruing issues.

The firm says it does not engage with management because "they don’t answer our questions".

But even the most sophisticated investment managers need to clarify and understand the detail beneath published financial accounts before they make a call on a company in either direction.

The absence of any intention to understand how those specific companies put their numbers together seems to add weight to the argument that Viceroy doesn’t really care about the detail because it makes money from generating a negative price move — and you don’t need the facts to do that, just a good story.

After falling 14% on the day of the report, Nepi’s share price began rising. At the time of writing, it had recovered to R109 a share, still R5 off the price it was trading at prior to Viceroy’s involvement.

"The wild swings in the price [of Nepi] unfortunately show the tendency of certain investors to overreact to accusations instead of facts, or attempt to force prices down for the benefit of their own positions," says Elston.

"It unfortunately shows how easy it is to potentially manipulate the market by releasing reports that make the claim of being ‘for educational purposes only’ but are released to support a position that has been taken in the market either by Viceroy Research or its clients."