Viceroy, as small research outfit (and short seller) based in America has struck again with a report on Nepi Rockastle, one of the biggest eastern European focused Real Estate Investment Trusts (REIT). The recent merger seems to have been very overpriced, and mainly benefitted a few insiders. The Romanian shopping centres seem to be running at a loss and according to Viceroy the share price in general is very overpriced. They supported their claims by a few detailed Romanian submissions, and although it seems fact based, their claims can and probably will be disputed. Without going into details on who is right and who is wrong, what have we learned by the report?
Viceroy gained notoriety because of the particularly well-timed report into Steinhoff almost a year ago. The claims in that report have not yet been proven, we are still waiting for the forensic audit to confirm it in the next few weeks. But the timing, just as the then CEO, Marcus Jooste resigned under a cloud of confusion, was impeccable and contributed to the 90% fall in the share price of Steinhoff. Ever since then, executives have shivered when it was rumored that Viceroy is looking into them. Companies like Aspen have been rumored to be a target, and without any report released the share price has hovered around the lows for a year now. Capitec was a target by Viceroy and the share price did react sharply, but a strong response from Capitec means that the shares recovered. No report of a SA listed company by Viceroy has been proven to be right by independent auditors. Is there anything good about their reports then?
I think yes, it is good that they issue their reports. It gets boards of directors and fund managers to be more on their toes and don’t simply rubber-stamp everything. As an investor you should always question everything, and don’t take the information for granted. For far to long have related party transactions been under reported, for far too long have fund managers simply held all of the top 40 shares, and just tried to follow the markets. For far to long have fund managers believed everything management told them. Because all of us stand to lose, if South African shares are avoided by international investors because of a reputation of poor corporate governance and fraud. If we are not able to attract foreign capital, local companies will find it harder to raise extra capital because the current economic circumstances don’t allow individuals to save more. By reducing savings in favor of consumption, the local pool of capital depletes thus making capital more expensive. That is something we can’t afford.
Like my father always used to say: Trust is the most important part of business, once it is gone, it is very hard to get back.