MW Learned from John Hempton how to Catch FMCN in Another Lie

January 24, 2013

This past September, research that John Hempton of Bronte Capital did on FMCN inspired us to do some more work ourselves. This is the first time we have publicly discussed these findings, which provide additional evidence that FMCN is a long-standing fraud.

Muddy Waters’s Reaction to Olam Q2 2013 Report

February 7, 2013

Muddy Waters retains our original investment thesis and Strong Sell rating on Olam’s shares. Our analysis of Olam’s Q2 2013 results is detailed in our latest report.

Initiating Coverage on AMT – Strong Sell (Full Report)

July 17, 2013

Muddy Waters rates American Tower Corporation (NYSE: AMT) shares a Strong Sell. In this latest report Muddy Waters highlights how:

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We rate American Tower Corp. (NYSE: AMT) a Strong Sell and value it at $44.57 per share, representing downside of 40%. AMT has serious challenges domestically and internationally that have not been factored into the stock price. It has engaged in a value destroying investment binge overseas, and we have identified a significant material misstatement in the Company’s accounts that could amount to fraud.

There is an approximately US$250 million discrepancy between what AMT claims to have paid for the acquisition of towers in Brazil, and the actual selling price. AMT claimed to have paid US$585.4 million for the towers, but the real price was close to US$300 million. If AMT is aware of this discrepancy, it would amount to fraud. We have provided our research to the SEC.

CEO James Taiclet’s consistent sales of approximately 90% of the shares he receives from option exercises suggests a lack of faith in the sustainability of AMT’s business – ironically, this is a view we share with him.

AMT’s international business is in part a de facto lending business that artificially inflates revenue, EBITDA, and AFFO. It is also part carry trade and part levered directional currency bet. This bet has resoundingly gone south this year.

AMT’s international IRRs are generally poor and far below cost of capital.

While wireless data usage will grow, much of this growth will circumvent cellular towers. Wi-Fi and more recently introduced technologies are making towers the data delivery option of last resort.

AMT’s REIT-focused investors will be disappointed by their inability to access AMT’s overseas cash flows.

Wall Street is setting investors up for a fall in AMT. We have reviewed five analyst models, and it is clear that they do not understand the company or know how to model it.

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Cracking Façade: AMT’s Q2 2013 Results

August 1, 2013

AMT’s Q2 2013 results show the cracks in the façade of its international business, with international EBITDA flat for the past three quarters, and international operating profit margin down 470 bps from Q2 2012. Certain of the issues we detailed in our July 17th report are at least partly responsible for the deterioration in the business. AMT has attempted to paper over these issues by, on one hand, failing to respond to numerous issues we raised in our prior report; and, on the other hand, attempting to evade some fairly pointed questioning on yesterday’s call. Further, we continue to take AMT to task for materially misstating the purchase price for Site Sharing. In this update, we present additional information showing that approximately $250 million appears to have gone missing in the transaction. Our conversations with a selling shareholder and a former AMT employee involved in the transaction confirm that AMT paid the selling shareholders approximately $300 million, and not the $585 million AMT claims.

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We note that six banks have responded to the results by lowering price targets: Barclays, Citi, J.P. Morgan, Macquarie, Pacific Crest, and Stifel.

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A Zebra Can’t Change its Stripes: AMT’s Latest Purchase from NIHD

August 11, 2013

AMT recently announced that it had agreed to acquire a total of 4,456 towers from NII Holdings, Inc. (NASDAQ: NIHD) for approximately $811 million, which is a blended average price of $182,000 per tower. This valuation is in the range of 15x to 21x EBITDA, even the low end of which is a worryingly high multiple for any tower portfolio – particularly one as risky as this one. Including required capex, that multiple increases about one turn (i.e. 16x to 22x). We discussed the possibility of this transaction happening in our initial report, and raised red flags about certain aspects of it. , This transaction appears to be yet another low quality, growth at any price transaction AMT management is making merely because it can (and is compensated to do). On a not unrelated note, last week, CEO James Taiclet pocketed approximately $4 million in profits from exercising options for 100,000 shares and immediately selling all of the stock.

Olam: Not Changing the Old Ways

September 1, 2013

We continue to believe that, in a world where capital is allocated to maximize economic efficiency, Olam’s shares have no value. The Company has simply borrowed too much money, and then invested in projects that will not generate sufficient returns to repay its debt obligations. In this note, we will only briefly comment on Olam’s FY 2013 results. (Numerous analysts have already done so.) Instead, we will focus on qualitative points that cause us to believe Olam is not really turning over a new leaf.

AMT’s / GTP: We’re More Skeptical than Ever

September 6, 2013

AMT’s $4.8 billion acquisition of Global Tower Partners is astoundingly expensive – the 2014 EBITDA multiple appears to be about 19x. AMT expects that its net leverage ratio will be 5.8x after the acquisition. Management says that they expect to rapidly de-lever afterward. We question how rapidly AMT can de-lever when it is paying 19x EBITDA.

Initiating Coverage on NQ Mobile Inc. (NYSE: NQ) – Strong Sell

October 24, 2013

Muddy Waters rates NQ Mobile Inc. (NYSE: NQ) shares a Strong Sell. In this latest report Muddy Waters highlights how:

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NQ is a massive fraud. We believe it is a “Zero”. At least 72% of NQ’s purported 2012 China security revenue is fictitious. NQ’s largest customer by far is really NQ. Our research estimates that NQ’s real market share in China is only about 1.5%, versus the approximately 55% it reports. We estimate that its China paying user base is less than 250,000, versus the six million NQ claims.

NQ’s Antivirus 7.0 is unsafe for sale to consumers, and we consider it to be spyware that makes users’ phones vulnerable to cyber attack. NQ makes a weak attempt to protect users’ private data as it’s uploaded through the Chinese government’s firewall to NQ’s server. Phones are vulnerable to MITM attacks because NQ fails to adhere to basic security protocols. MW engaged top-flight security software engineers to analyze this product.

NQ’s purported international revenue of $36.5 million is likely less real than its PRC revenue. NQ claims to generate international revenue in obscure markets, and through mysterious counterparties that seem to seldom pay.

NQ’s future is as bleak as its past. The recent pivot to advertising and gaming is merely an attempt to change to a fraud that NQ hopes will be less obvious. NQ cannot monetize users that it does not have.

NQ’s acquisitions are highly likely to be corrupt.

NQ’s cash balances are highly likely to not be real. In NQ’s 2012 20-F, PwC classified all cash and term deposits as Level 2 assets (slightly hard to value), which is the first time we have seen this. NQ’s purported movements of cash from its IPO almost certainly did not occur due to PRC FX controls. We therefore believe the term deposits are likely forgeries.

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