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After Steinhoff:

should we beware the bogeyman?

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Renier de Bruyn

Head of Asset Allocation

Few people had heard of Viceroy Research before the US-based firm’s damning report on Steinhoff at the time of the latter’s dramatic share-price collapse in December last year. The Viceroy report has impacted on investor sentiment to such an extent, however, that speculation over another (unnamed) company the research group has in its sights has led nervous investors to draw up a ‘suspect list’ – impacting the share price of the companies on the list. What are we to make of this? Should we be wary of where the Viceroy ‘bogeyman’ might visit next?

Viceroy’s exposé of Steinhoff brought the little-known research firm instant fame and credibility in South African investors’ minds – despite the fact that some of the deductions included in the report are as yet unproven and still need to be put into a valuation context after the new audited Steinhoff financial results become available.

However, the extent of the Steinhoff share price plunge, which coincided with the release of the report, has struck fear into the hearts of investors that Viceroy’s next target will suffer the same fate as the global retailer. Viceroy has stated that it will soon issue a report on another South African company, leading to frenzied market speculation over the identity of this company.


Companies put on a ‘suspect list’ by nervous investors – those that may have mispresented their financial performance and may thus be visited by the bogeyman – have as a result experienced large share price movements. These include Aspen, Ascendis Health, EOH, and property shares linked to the Resilient stable, such as Fortress, Greenbay and Nepi Rockcastle.

As expected, these companies’ management teams have all moved to reassure the market that their books are clean and their businesses are operating to expectation – similar to the Steinhoff correspondence before December last year.

But who exactly is Viceroy Research? The identities of the three individuals behind the organisation, a former UK social worker and two 23-year-old Australians, were uncovered in the media only over the past week. The research outfit has, however, managed to influence South African investor sentiment to such an extent that even an incorrect report from Viceroy on a company is likely to see short-term panic reflected in its share price.

We should also take into account that the Viceroy individuals are taking short positions in the stocks they report on, thereby benefitting from the negative price reactions.


How do we at Sanlam Private Wealth respond to such investor fears when we manage client portfolios? We don’t try to second-guess where the bogeyman may or may not be visiting next. For each company we invest in, we’ve built a solid investment case and in-depth valuation model, and we regularly check its progress against our assumptions.

While we’ve in fact avoided most of the companies on the ‘suspect list’, this has been primarily based on valuation grounds after factoring in specific concerns we identified in each company following our own analysis. We believe that if our analysis of it is correct, a company’s share price should over time gravitate towards our estimate of its fair value, which has incorporated all publicly available information that may impact its worth – the same information to which the bogeyman should have access.

While events that lead to negative market reactions can’t always be predicted, our best defence remains to buy shares only when they’re trading below our estimate of their intrinsic values, and then wait for the market to recognise their value.

Meanwhile, we’ll be looking out for the next strike by the bogeyman – either to justify our avoidance of certain shares, or to make use of opportunities resulting from market overreaction driven by investor irrationality and fear.

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