Director | Exposing Creative Accounting, Bucephalus Research Partnership

Robert Medd

Director | Exposing Creative Accounting

Exposing Creative Accounting

Bucephalus Research Partnership

Bucephalus Research Partnership Limited. Exposing Creative Accounting.

At the Bucephalus Research Partnership (BRP) we analyse financial statements using our accountant's practical experience and our own quantitative algorithms for corporate governance, accounting risk and peer performance.

Our thematic research refines our unique algorithms while our single stock research focuses on examples where we discover a significant gap between published accounts and business reality.

​Bucephalus Research Partnership:
- Is an independent fee-based research service
- Does not take proprietary positions, long or short
- Does not solicit business or fees from the corporates we review

Forensic Accounting

WiseTech trumpeted its H1 results: revenue +31% and EBITDA +29% as vindication of the model.  The problem is that growth is M&amp;A driven, revenue at key customers was flat or down, like-for-like profit margin fell, pre-financing cashflow was negative, acquisitions are performing worse than expected and, having said “no capital raises” in April, they issued equity in May. The metrics they use are obtuse and useless for measuring their real performance, but it is quite clear that asset returns are collapsing. A roll-up with a 4% return on investment on 15x sales and 300x business cashflow looks over-priced. SELL

WiseTech trumpeted its H1 results: revenue +31% and EBITDA +29% as vindication of the model.  The problem is that growth is M&amp;A driven, revenue at key customers was flat or down, like-for-like profit margin fell, pre-financing cashflow was negative, acquisitions are performing worse than expected and, having said “no capital raises” in April, they issued equity in May. The metrics they use are obtuse and useless for measuring their real performance, but it is quite clear that asset returns are collapsing. A roll-up with a 4% return on investment on 15x sales and 300x business cashflow looks over-priced. SELL

WiseTech (WTC AU): Smoke and Mirrors, Sell

Head of Research, IPOs & Placements, Aequitas Research

Sumeet Singh

Head of Research, IPOs & Placements

IPOs and Placements coverage across Asia Pacific

Aequitas Research

We cover all listing across the Asia Pacific along with follow-up placements. As of Dec 2020, our team had covered 539 IPOs with a hit rate of 73.5% and 685 placements with a hit rate of 66.8%.

We combine fundamental bottom-up views with our proprietary quantitative framework to provide a holistic coverage across new listings and placements. Our coverage includes pre-IPO notes before the deal is launched, follow-up analysis once the deal is live and post-listing trading analysis as well.

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/xero-ltd" target="_blank" data-smartkarma-citation="entities:390:1" rel="noopener">Xero Ltd (XRO AU)</a> (Mcap: US$6bn, ADV: US$35m) is as its tagline says a "beautiful business". The company is a classic SaaS business offering cloud based accounting. It was set up in New Zealand in 2006 and was listed in 2007, raising a total of NZ$15m. The business is today worth US$6bn. However, XRO mostly caters to small business owners in Australia, NZ, and UK, along with other geographies. With the COVID-19 ravaging small and medium enterprises (SMEs) across its main markets, its questionable if the company can deliver on near term growth.  If the crisis lasts a few months, its growth over the next 2-3 years might be put in question as well.While the recurring revenue will keep the business running, the valuation isn't really factoring in a slowdown.

Xero Ltd (XRO AU) (Mcap: US$6bn, ADV: US$35m) is as its tagline says a "beautiful business". The company is a classic SaaS business offering cloud based accounting. It was set up in New Zealand in 2006 and was listed in 2007, raising a total of NZ$15m. The business is today worth US$6bn. However, XRO mostly caters to small business owners in Australia, NZ, and UK, along with other geographies. With the COVID-19 ravaging small and medium enterprises (SMEs) across its main markets, its questionable if the company can deliver on near term growth.  If the crisis lasts a few months, its growth over the next 2-3 years might be put in question as well.While the recurring revenue will keep the business running, the valuation isn't really factoring in a slowdown.

XERO: A Beautiful Business but Not Pricing in Much in the Way of an SME Rout

WiseTech asked to see our report and questions. There were no direct answers, simply a standardised email that stated that recent disclosures “firmly and comprehensively refuted our claims”, that they “reject misunderstanding, selective representation or mis-representation” and that they comply with all the local standards. This is odd because our questions came after the October filings,  they didn’t note any errors or incorrect conclusions and we think they are the ones using selective representation or mis-representation. We wonder if WiseTech has chosen to “take the fifth”, i.e. silence over self-incrimination.

WiseTech asked to see our report and questions. There were no direct answers, simply a standardised email that stated that recent disclosures “firmly and comprehensively refuted our claims”, that they “reject misunderstanding, selective representation or mis-representation” and that they comply with all the local standards. This is odd because our questions came after the October filings,  they didn’t note any errors or incorrect conclusions and we think they are the ones using selective representation or mis-representation. We wonder if WiseTech has chosen to “take the fifth”, i.e. silence over self-incrimination.

Adobe (ADBE US), the original Software as a Service (SaaS) success story, showed that online conversion could drive revenue, operating leverage and cash generation.  The Australian logistics software company WiseTech (WTC) isan accounting fiction,Slowing growth, negative operating leverage, overvalued intangibles, no profits or cashflow, black box accounting and related party deals.  living the SaaS dream, on 25x sales.It is time for wise technology investors to wake up and move on.

Adobe (ADBE US), the original Software as a Service (SaaS) success story, showed that online conversion could drive revenue, operating leverage and cash generation.  The Australian logistics software company WiseTech (WTC) isan accounting fiction,Slowing growth, negative operating leverage, overvalued intangibles, no profits or cashflow, black box accounting and related party deals.  living the SaaS dream, on 25x sales.It is time for wise technology investors to wake up and move on.  

SELL WiseTech (WTC AU): Slowing Growth, Negative Real Cashflow and Blackbox Accounting

Technical Analyst, Vermilion Research

Joe Jasper

Technical Analyst

Technical and Quantitative Research

Vermilion Research

Vermilion’s objective is to deliver timely, actionable, and unique technical research to professional investors through the application of our various technical indicators.

Our research strategists seek to highlight securities which we believe are at major inflection points, based on our various technical and quantitative indicators, and offer asymmetric risk/return profiles. Our unique research methodology, centered on relative strength, enables our strategists to deliver superior investment recommendations.

Our process begins by organizing the universe of actively traded stocks into discrete sectors, then into industry groups. We then apply our technical and quantitative tools to identify developing price trends. Once attractive trends are identified within a selected sector or group, we screen for individual stocks which we believe offer the best risk/reward profile. We provide a historical perspective that often reveals, through our long-term charts, how price patterns often repeat themselves over time.

Technical Analysis

Deterioration for ACWI ex-US, EAFE, and EM, continued bearish-leaning indicators, and the downward trajectory of bond yields leads us to remain cautious and concerned that global equities remain vulnerable and could be poised for additional weakness moving forward. Major indexes around the world continue to do next to nothing, making Sector, Group, and stock selection all the more important. We prefer to use a barbell strategy of growth and safety. Attractive and actionable themes highlighted in today’s report include IT Services/Tech Software, Communications, Precious Metals, and Utilities.

Deterioration for ACWI ex-US, EAFE, and EM, continued bearish-leaning indicators, and the downward trajectory of bond yields leads us to remain cautious and concerned that global equities remain vulnerable and could be poised for additional weakness moving forward. Major indexes around the world continue to do next to nothing, making Sector, Group, and stock selection all the more important. We prefer to use a barbell strategy of growth and safety. Attractive and actionable themes highlighted in today’s report include IT Services/Tech Software, Communications, Precious Metals, and Utilities.

Global Equity Strategy: Stay on the Defensive

Australia

WiseTech Global Pty Ltd provides various technology and information technology management solutions. The Company offers cloud based various technology platforms, market specific software and logistics technology solutions, such as edienterprise, a platform supply chain logistics management system, software-as-a-service, and clinical management software. 

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Wisetech Global (WTC AU)

WiseTech (WTC AU): Smoke and Mirrors, Sell

WiseTech trumpeted its H1 results: revenue +31% and EBITDA +29% as vindication of the model. The problem is that growth is M&A driven, revenue...

Bucephalus Research Partnership

XERO: A Beautiful Business but Not Pricing in Much in the Way of an SME Rout

Xero Ltd (XRO AU) (Mcap: US$6bn, ADV: US$35m) is as its tagline says a "beautiful business". The company is a classic SaaS business offering cloud...

Sumeet Singh

Wisetech: Taking the Fifth

WiseTech asked to see our report and questions. There were no direct answers, simply a standardised email that stated that recent disclosures...

Bucephalus Research Partnership

SELL WiseTech (WTC AU): Slowing Growth, Negative Real Cashflow and Blackbox Accounting

Adobe (ADBE US), the original Software as a Service (SaaS) success story, showed that online conversion could drive revenue, operating leverage and...

Bucephalus Research Partnership

Global Equity Strategy: Stay on the Defensive

Deterioration for ACWI ex-US, EAFE, and EM, continued bearish-leaning indicators, and the downward trajectory of bond yields leads us to remain...

Vermilion Research

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