Small Cap Value Report (26 Oct 2015) - GBO - I'm vindicated!, RSTR, PIM

Good morning! No, it's better than that, it's a fantastic morning!

Globo has finally admitted that its accounts were indeed fraudulently misstated, as I suspected. So after a battle of nearly 3 years, I have been completely vindicated with my numerous warnings to investors that the accounts looked dodgy as hell, and all the specific red flags that I, well, flagged.

Click here to view my entire archive of 21 Stockopedia articles from Jan 2013 to date on Globo, collated into one 30-page Google Doc. It's quite interesting to see how it unfolded. I was bearish from Day 1, and had forgotten just how turbulent things got in Oct 2013, when the original bear raid was made on the company, but it somehow survived and carried on for another two years. Amazing really.

Some people listened, and saved themselves money by steering clear of this fraud. Other people thought they knew best, ignored all the obvious facts pointing to it being at least a semi-fraud, hurled abuse at me, constructed a false narrative in their minds that it was all an evil shorters' conspiracy, reinforced their incorrect views by discussing them with other similarly misguided people on bulletin boards, and have ended up looking complete idiots, on top of losing their money. No sympathy from me there I'm afraid.

I do however have a lot of sympathy for the more decent people who were sucked in unwittingly, through e.g. appalling puff pieces in the press, such as this horrendous Simon Thompson article from the Investors Chronicle on 5 Aug 2015 - "Short sellers in for shock treatment". To allow yourself to be used as a mouthpiece for a fraudster, trying to engineer a short squeeze, in my view shows shockingly poor judgment, and naivete. Not for the first time either, a similar thing happened with the China AIM frauds. Commentators need to be street-wise, and question everything, not just regurgitate stories from the PR people.

More on Globo below. The above is just for starters!

For anyone not aware, you have not one SCVR today, but three! Yes, I caught up on the backlog yesterday, apologies for my outage last week, and wrote belated reports, here are the links;

Thu 22 Oct 2015 - Small Cap Value Report

Fri 23 Oct 2015 - Small Cap Value Report - Globo special (NB. written before today's capitulation)

Globo (LON:GBO)

Share price: suspended
No. shares: doesn't really matter any more!
Market cap: probably nil

Company statement - it looked ominous when there was no statement from the company at 7am this morning - they should have had plenty of time to put together a rebuttal statement over the weekend, after the imperfect, but still damning expose written by Quintessential Capital Funds, and published by ShareProphets.

Proper companies with prudent accounts don't need to put out clarification statements at all, and don't get attacked by shorters in the first place. So if a company finds itself (not for the first time) having to rebut serious allegations, then the chances are there's something badly wrong.

Here is the main text of today's announcement, with my bolding of the key parts;

On Friday 23 October 2015 the Board of Directors of the Group became aware of a report published by Quintessential Capital Management ("QCM").  

Following the announcement by the Company on the morning of Friday 23 October 2015, an emergency Board meeting was convened as soon as practicable for Saturday 24 October 2015 to discuss the allegations in the report and to ascertain the actions that would be required to resolve the matter. It was intended that an appropriate independent forensic accounting team be appointed to investigate the claims. 

However, at the Board meeting, Costis Papadimitrakopoulos the CEO of the Group brought to the attention of the Board certain matters regarding the falsification of data and the misrepresentation of the Company's financial situation, and offered his resignation, as did Dimitris Gryparis the CFO of the Group. 

Following the meeting and receipt of legal advice, a committee of the board was set up, comprising the non-executive Directors only (the "Committee"). The Committee has accepted the resignations of Costis Papadimitrakopoulos and Dimitris Gryparis from the Company with immediate effect.  Gerasimos (Makis) Bonanos (the COO) has been suspended from his duties with the Company also with immediate effect, pending the outcome of appropriate investigations.

All of the executive directors have agreed to make themselves available and fully co-operate with any investigations. The Committee has initiated discussions with appropriate advisers in relation to the next steps and to ascertain the true financial position of the Company. In addition, the Committee has asked the Company's lawyers to notify the matter to the appropriate authorities and the Committee has informed the Company's principal bankers.  

Further announcements will be made in due course.  In the meantime the Company's shares will remain suspended from trading as per the dealing notice on Friday 23 October 2015.

So that's very clear - the accounts are fraudulent, and the CEO, CFO, and COO have all gone.

So the only big question remaining, is how much cash, if any, is left? As I commented yesterday in my SCVR for 23 Oct 2015, fraudsters don't usually leave the cash behind, do they? Since it's now clear this was a fraud, then I imagine that most, maybe all, of the cash has probably been stolen or otherwise dissipated (maybe through trading losses).

It's not really a surprise to me. The company's behaviour was so obviously suspicious - acting like a financially distressed company, trying to raise a junk bond at 10% interest, whilst claiming to simultaneously have E104.4m cash in the bank, was just beyond ridiculous. As I pointed out in my SCVR of 30 Sep 2015, there is no reasonable explanation for this bizarre, unbelievable behaviour. The only logical explanation is that the cash had been stolen.

Director selling - even more ominously, if that's possible, it turns out that Costis has been dumping his personal shares, as follows;

The Chief Executive Officer, Mr Konstantinos Papadimitrakopoulos advised the Company on 25 October 2015 that up to 22 October 2015 he has:

• sold 42,049,655 shares of Globo Plc; and

• pledged 10,000,000 shares of Globo Plc under a personal loan agreement with Lantau Holdings Limited.  The loan will default at close of business today because of two consecutive days of the suspension of the Company's shares from trading. 

Note the words "up to" in the first bullet point. So it's not clear exactly when he dumped his stock. This reinforces the likelihood that the shares are worth very little, if anything.

My opinion - I'm going to be unbearably smug for the rest of this week, so apologies in advance for that! The bottom line is this - if people who are good at dissecting accounts are all saying that something doesn't look right, and explaining precisely what doesn't look right, then the sensible thing to do is sit up & listen, not stick your head in the sand just because you happen to hold that stock.

I think investor psychology is the biggest problem in this field - people are their own worst enemy, because they refuse to believe bad news, even when it's staring them in the face.

Hopefully the misguided bulls will learn something from this debacle - although I see the same names cropping up defending rubbish companies over & over again - Globo, Afren, Blinkx, Monitise, to name just a few. Every time they attack the shorters, and (almost) every time they're hopelessly wrong, and the shorters are nearly always right.

There's a reason for this. It's because shorters tend to be the most experienced investors, who've been round the block a few times & know what to look for at dodgy companies. So if people only learn one thing from the Globo fraud, it's to listen to shorters, and consider the facts fully, instead of trying to shoot the messenger with personal attacks.

Once again, the LSE, FCA, and NOMADs have been completely useless in protecting investors from fraud. Once again, it has been shorters who have been the only effective regulators in the market. What a total disgrace.

Rightster (LON:RSTR)

Share price: 9.5p (up 5.4% today)
No. shares: 367.6m
Market cap: £34.9m

New management - there's a glimmer of hope for shareholders in today's announcement, which says that major shareholders are supporting a change of management. I imagine that is a precursor to shareholders putting in a bit more money.

The big unknown is what discount shareholders will demand to put in fresh cash? It could be very substantial discount, if they decide to play hard ball.

This share is too risky by far, in my view, to even consider as an investment at the moment.

Plant Impact (LON:PIM)

Share price: 58.8p (up 8.9% today)
No. shares: 81.4m
Market cap: £47.9m

Results y/e 31 Jul 2015 - these figures show good top line growth, up 73% to £4.3m, and the operating loss has narrowed from £856k last year, to £230k this time.

So it's making progress, but does that really justify a market cap of nearly £48m?! It strikes me as a very ambitious valuation given where the company currently is.

Note that the balance sheet has dramatically improved, after a fundraising, and now has £7.6m in net cash, so everything looks very solid now in terms of financial strength.

My opinion - the valuation hinges almost entirely on expectations for future progress, as there are no historic profits or dividends. So it's all about researching the company's products, and forming a view on how well they might sell in future. I'm not qualified to do that, so have no idea how to value this share I'm afraid.

It's worth bearing in mind that the share price already factors in considerable success.

There's nothing much of interest happening today, so I'll knock off for the day now. There are various other bits & pieces to attend to after lunch, but I'm off for a fondue now.

Regards, Paul.

(of the companies mentioned today, Paul has no long positions, and has a short position on GBO [shares suspended]. A fund management company with which Paul is associated may also hold positions in companies mentioned.

NB. These reports are personal opinions only, and never advice or recommendations)