Summary

The Analyst – S&T AG

Firstly, The Analyst evaluated the auditor dynamics of S&T – Ernst & Young (EY) regional office in Linz, which is a second-tier city in Austria, that audited S&T. EY were also the auditors for companies such as WireCard… S&T frequently promotes strong cash flow and EBITDAR growth, but once the business's fundamental economics are examined, cracks begin to show. For example, S&T seem to be buying companies with a loaded receivables balance towards the end of the year. They then unwind the receivables and artificially increase their seed operating cash flow. Mark has analyzed S&T’s net debt as €150 million, and this is significantly greater than the perceived net cash position. S&T has bought 51% stakes in IT integrators in Moldova and Romania – countries that do not hold a great reputation for corporate governance and accountability. S&T's Romanian companies are extremely localised and low margin, according to the Analyst's fieldwork, and have little resemblance to the businesses they portray to their investors. S&T often buy companies that are making losses, and immediately publish them as making profits. For example, Kapsch CarrierCom went from €20 million in losses to €11 million in profits just a year later. Finally, the way management is highly promotional and appears to publish bullish commentary every time the stock goes below €20 is a warning sign.


Behind the Numbers - Iron Mountain US

Behind the Numbers conclude the valuation of Iron Mountain is becoming out of line when you compare to the essential earning number (17 times greater), and the stock is near an all-time high despite a lack of growth potential. Operating costs are ongoing and in cash, but when they present their reach stats, these are then added back as non-cash costs. Their ROI is inflated through their non-amortization Goodwill. As their dividend exceeds their net income, ROI is further inflated. Overall, there is a very small difference in cost to capital vs earnings. Jeff forecasts negative growth: 7% of the records are withdrawn or destroyed every year and the new data centres only make up 7% of its business (growth potential) vs 89% record storage (an obvious declining market). The way they disclose their storage statistics has changed, which is a reason for concern. To maintain their high dividend, they are borrowing the money, and are already highly leveraged - debt is 7 times EBITDA. Furthermore, they have tapped all their other potential sources of revenue sources such as sale and lease-back properties. Exorbitant costs to their proposed restructuring plan are further signs of concern.


Hedgeye – Plug US

Plug is trading at 4 times revenue guidance for 2024. It has recorded a loss of $92 million last year and is not heavily shorted. Their business plan of fuel cell forklifts is largely redundant due to the introduction of lithium-ion battery forklifts. In addition, their hydrogen cells were not a source of green energy until 2020. At this valuation, Hedeye claims that the $5 million cash they have is not a concern for shorts. Plug’s technology is lacking: their PEM units are not efficient and fuel cells are not a viable disruptor in the transportation industry. 70% of Plug’s sales are to Amazon and Walmart, however, these are effectively sold at a negative margin, as they gave millions of warrants on Plug shares in the forklift deals. Plug has issued more stock than they have reported cumulative revenue. They are now facing class-action lawsuits after selling billions of dollars in stock before filing restatements, claiming a lack of revenue for the last four years, which is a reason not to trust the management team.


Stockviews – Future PLC

The media business is showing a decline of 10% per year. Future PLC is now moving from what was potentially a great tailwind, into a “meaningful” headwind. Future PLC's recent purchases of TI Media and the GOCO business are also structurally challenged. TI Media is a traditional magazine business, and we are beginning to see an accelerated decline in this market. GOCO is a company that has been in decline since 2017, despite the management being bullish. The problem being is that insurance, especially auto issuance is already highly penetrated and competitive. GOCO has a market share of 15%, compared with the leader in the UK with 45% (Compare the Market). Future PLC’s stock price is 25 times next year’s earnings as investors expect they can continue to add value through acquisitions. Stockviews, on the other hand, sees this as an unsustainable expectation, with aggressive acquisitions of firms made solely to profit in the near term, rather than with any long-term purpose in place. Finally, the SEO results that Future PLC's web pages have done so well in the past to get onto Google's front page via organic results are progressively being bought out. This threatens the organic growth of Future PLC’s sites. 


Vision Research – Allegro PW

Bulls on Allegro would point to increased penetration opportunities as well as possible increases in expenditure per active buyer in Poland. According to Vision Research, this may be a misconception. 50% is already engaged in e-commerce, and comparing Poland to other nations may be misleading, as Poland is more similar to Germany with an older generation that has 12% participating in e-commerce. Furthermore, there are 13 million active buyers on Allegro’s platform, but only 14 million households in Poland. Only transaction growth might sustain the anticipated projections, but Vision Research sees this as a challenging goal in a post-COVID climate since relaxing restrictions would result in less opportunity for online transactions. An increasingly competitive e-commerce landscape is another issue for Allegro. Amazon is expanding its market share in Poland by launching a separate Polish Amazon website in 2021 and investing heavily in infrastructure (10 distribution centres), as well as providing a more comprehensive range of services than Allegro (e.g., Prime). Ali Express is another competitor - currently Poland’s 2nd largest online marketplace - and they are upgrading their infrastructure and improving their product line. Allegro will be impacted by rising operational expenses. Shipping costs, for example, have risen to as much as 5% of revenues. The valuation is still 30x EBITDA, with less than 2% free cash flow yield.