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Who’s going to be the next Wirecard?
Mirabaud Securities, the equity research house whose analyst Neil Campling stood out for being the only person to put a price target of zero on the German payments processor, have been thinking about this too.
They’ve come up with 20 warning signs that they are looking out for in trying to determine the next “Big Disaster”. They are as follows:
1. Massively promotional CEO who actively looks for publicity and spends a lot of time courting Wall Street/investors etc and is very media savvy
2. Huge CEO/Senior Management compensation package NOT tied to cash flow or Earnings but just to Sales and/or the stock price, creating the possibility of egregious wealth creation if the stock goes up a lot. Huge pledging of collateral by the CEO in return for margin loans to fund a billionaire lifestyle
3. Management compensation generally way out of line with peers despite notably less profitability
4. Glossy future projections that have a habit over a long period of being proven to be too optimistic
5. Questionable product quality, ie defects (boon??) or debatable technological leads over similar products
6. Some evidence of self certifying, whether it be through strange international subsidiaries or not having an Auditor or experiencing unusual and slightly sudden end of quarter surges in revenues, up to and including the last day
7. Unusual or unverified and large Receivables in a business where the product is exchanged for cash up front
8. Evidence that the company is existing on a shoestring, not paying Suppliers, Employees, Landlords etc
9. Unusual margin progression, with SG +A going down over time despite a rising global footprint, or GM's staying flat despite much lower ASP's over time, for instance.
10. High levels of Gross Debt. Cash balances not matched by notable Interest Income thereby suggesting they are fraudulent
11. High employee turnover, especially in the LEGAL and FINANCE areas. Co-founders or Board members leaving.
12. Aggressive pursuit via paid third parties and/or “heavies” of any critics or people who have too many questions, which in any case are “boring”
13. Dislike of Hedge Funds
14. Possible Narcissistic Personality Disorder on the part of the CEO. Additional points if he/she uses Twitter a lot
15. Large cabal of outcasts/weirdos/bloggers/Twitter groups who have been saying for years that everything is amiss but just get a lot of criticism because the stock keeps going up ergo they must be idiots
16. Slowing top line growth rate despite all the hoopla and supposed “growth stock” status. Evidence of competitors rapidly eroding unsustainably high market share.
17. Loss making. Ideally never made a profit but likes to pretend it did or failing that, that it will for sure in 2-3 years due to highly questionable new products. But the 2-3 years gets pushed out constantly
18. Extensive use/exclusive use of NON-GAAP Accounting and occasional bridging to get from a Net Loss to a (small) Net Profit via poorly explained one-offs/Other Items/unusually large Credits of some kind in a desperate attempt to get into an Index by illicit means
19. Weak Board, preferably also small and ideally in hock in some way to the CEO, who therefore do his/her bidding. Helps if some of them are related physically to the CEO.
20. Gullible media, gullible analysts and dozens of paid bloggers who produce Price Targets out of nowhere based on “Option Value” or put another way products that are at least 5 years away from having any material impact.
ftalphaville.ft.com/2020/06/26/...g-to-be-the-next-Wirecard-/
Who’s going to be the next Wirecard?
Mirabaud Securities, the equity research house whose analyst Neil Campling stood out for being the only person to put a price target of zero on the German payments processor, have been thinking about this too.
They’ve come up with 20 warning signs that they are looking out for in trying to determine the next “Big Disaster”. They are as follows:
1. Massively promotional CEO who actively looks for publicity and spends a lot of time courting Wall Street/investors etc and is very media savvy
2. Huge CEO/Senior Management compensation package NOT tied to cash flow or Earnings but just to Sales and/or the stock price, creating the possibility of egregious wealth creation if the stock goes up a lot. Huge pledging of collateral by the CEO in return for margin loans to fund a billionaire lifestyle
3. Management compensation generally way out of line with peers despite notably less profitability
4. Glossy future projections that have a habit over a long period of being proven to be too optimistic
5. Questionable product quality, ie defects (boon??) or debatable technological leads over similar products
6. Some evidence of self certifying, whether it be through strange international subsidiaries or not having an Auditor or experiencing unusual and slightly sudden end of quarter surges in revenues, up to and including the last day
7. Unusual or unverified and large Receivables in a business where the product is exchanged for cash up front
8. Evidence that the company is existing on a shoestring, not paying Suppliers, Employees, Landlords etc
9. Unusual margin progression, with SG +A going down over time despite a rising global footprint, or GM's staying flat despite much lower ASP's over time, for instance.
10. High levels of Gross Debt. Cash balances not matched by notable Interest Income thereby suggesting they are fraudulent
11. High employee turnover, especially in the LEGAL and FINANCE areas. Co-founders or Board members leaving.
12. Aggressive pursuit via paid third parties and/or “heavies” of any critics or people who have too many questions, which in any case are “boring”
13. Dislike of Hedge Funds
14. Possible Narcissistic Personality Disorder on the part of the CEO. Additional points if he/she uses Twitter a lot
15. Large cabal of outcasts/weirdos/bloggers/Twitter groups who have been saying for years that everything is amiss but just get a lot of criticism because the stock keeps going up ergo they must be idiots
16. Slowing top line growth rate despite all the hoopla and supposed “growth stock” status. Evidence of competitors rapidly eroding unsustainably high market share.
17. Loss making. Ideally never made a profit but likes to pretend it did or failing that, that it will for sure in 2-3 years due to highly questionable new products. But the 2-3 years gets pushed out constantly
18. Extensive use/exclusive use of NON-GAAP Accounting and occasional bridging to get from a Net Loss to a (small) Net Profit via poorly explained one-offs/Other Items/unusually large Credits of some kind in a desperate attempt to get into an Index by illicit means
19. Weak Board, preferably also small and ideally in hock in some way to the CEO, who therefore do his/her bidding. Helps if some of them are related physically to the CEO.
20. Gullible media, gullible analysts and dozens of paid bloggers who produce Price Targets out of nowhere based on “Option Value” or put another way products that are at least 5 years away from having any material impact.
ftalphaville.ft.com/2020/06/26/...g-to-be-the-next-Wirecard-/
