ShadowFall Reflections

Recent Stories

THE PROFIT HOLY GRAIL

We reflect upon the profits being made by testing companies in the wake of the COVID-19 pandemic. While some have started to question the price of Covid tests, and companies are coming under more scrutiny, we believe that the market hasn’t realised the full scale of the likely profit uplift for one of the world’s largest public testing companies: Eurofins.

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THE IPO HANGOVER

In the United States the IPO party is in full swing and seems to be reaching its zenith. Record numbers of loss-making IPOs are coming to the market and yielding first day gains (40%+); akin to those seen in the 1999 heyday. In Europe, we find a raft of secondary selling by insiders, which doesn’t augur well. On the short side, this barrage of overcooked IPOs should offer some fertile hunting ground…

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THEY WERE FINDING BODIES ALL OVER

We reflect upon how the European investment landscape has evolved in the wake of Wirecard’s collapse. We focus on the shifting attitude of regulators, auditors and other market participant to short activism. Going forward, we believe companies which use aggressive accounting or have other perceived flaws, may face greater scrutiny. Solutions 30’s recent trials and tribulations will likely only compound this trend. We also reference Kerry Group, Boohoo and Deliveroo.

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WHEN MANAGEMENT SPEAKS

In this article, we reflect upon the varying ways in which a company’s management may respond to serious allegations. We focus on Boohoo Group in the light of the allegations that have been raised regarding its supply chain and the Levitt Report which investigated this. Our evaluation of matters is that all too often Boohoo’s management’s version of events does not reconcile either with the report’s findings or prior statements which they have made.

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THE LONG VIEW

In this article, we reflect upon the different actions taken by company management in response to the current crisis with a focus upon St James’s Place.

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BRAVADO BUYS AND UNREMITTING SALES

We believe that Temenos’ SARs arrangement to reward its employees enables it to flatter its P&L, operating and free cash flow. The fact that these share awards appear to be sold almost as soon as they become eligible to exercise doesn’t inspire us with great confidence.

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TALK ABOUT CLOSENESS?

The Financial Times’ journalists, Madison Marriage and Jonathan Ford, wrote a compelling report in August 2018: A dangerous dance – when auditors are too close to the client.

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PRO-FORMA ULTIMO

A sagacious journalist for the Financial Times, Robert Smith, recently wrote an interesting article on how ex ante some Private Equity (PE) firms attempt to boost their target business’ numbers ahead of acquisition: Equivalent of doping? Private equity takes juicing the numbers to the next level.

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SHORT SELLERS & AUDITORS

The relatively recent, heightened interest in the role and responsibilities of audit firms and their oversight must raise conflicting views for short sellers.

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