Should investors take heed of mysterious short-seller’s attack on Babcock?

Should investors take heed of mysterious short-seller’s attack on Babcock?

  04 Nov 2018

The dossier also says Babcock’s £140m deal in 2014 deal to buy the Defence Support Group which maintains the British Army’s vehicles and light weapons has been a failure, with the contract making a loss. 

Boatman’s conclusion is damning. “Time and time again we uncovered information that should have been in the hands of investors,” it says.

However, with the critic unwilling to reveal anything about itself – and how it arrived at its verdict, despite claims its “investigative team have been researching Babcock for six months” – investors can’t be sure of Boatman’s veracity or its motives.

One fact is clear though. Babcock shares have declined steadily for the past two years, falling 40pc, against a market that has risen. 

Whether Boatman’s report is the work of short-sellers looking to make a quick killing, researchers who have found genuine troubles in the company or others with political motives, it has certainly succeeded in making waves.

 

Mysterious short-sellers’ previous targets

Stinging attacks on companies from mysterious sources have made the headlines before. The most high-profile to affect a UK-listed company was put out by little-known American short-seller Gotham City and targeted Aim-Listed software business Quindell.

In 2014, Gotham labelled Quindell as a “country club built on sand” referring to the company’s growth from a golf course and questioning its revenues and profits, claims which led to a 39pc one-day drop in the share price. Quindell eventually restated its accounts.

Gotham also targeted Spanish telecoms group Gowex in the same year, accusing it of fraud. Gowex collapsed soon after, having admitted falsifying its accounts.

US-based Muddy Waters is another short-seller to have brought down businesses. Its best known target was Sino-Forest, a Canadian-listed Chinese company. When Muddy Waters founder Carson Block accused the plantation company of inflating its assets and profits and calling it a multi-billion-dollar Ponzi-scheme in 2011, Sino-Forest shares fell almost 80pc. The company collapsed into bankruptcy soon after.

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