Shares in German leasing company Grenke AG (GLJ:GR) have fallen heavily this week following the release of a report on the organization by US short seller Viceroy Research. Viceroy was co-founded by Fraser Perring, who publicized doubts about Wirecard’s accounting as early as 2016.
Viceroy’s report on Grenke, which was released on 14 September and entitled ‘Grenke – For Your Fraud Financing Needs’ accuses the German company of engaging in fraudulent accounting techniques. It also alleges that Grenke swindled small businesses and laundered money for criminals.
Is Grenke the next Wirecard? Right now, it’s too early to say. In these kinds of situations, however, we can get clues from insider transactions and short selling data. This data can provide investors with powerful insights. Recent insider purchases, for example, indicate that insiders expect their company’s stock to rise. So, let’s take a look at the data on Grenke since the short selling report from Viceroy was published.
Source: 2iQ Research
Before we analyze the insider transaction and short selling data, it’s worth looking at the accusations from Viceroy. In its report, the short seller does not hold back. It claims that:
Grenke AG (XTRA:GLJ): For Your Fraud Financing Needs. Viceroy’s report is now live. We put the spotlight on Grenke’s chicanery; swindling small businesses, laundering money for criminals, & accounting fraud.https://t.co/wIOQ1DyfTF#Grenke #fraud $GLJ #thread 1/n pic.twitter.com/bx9fLMF4yY— Viceroy (@viceroyresearch) September 15, 2020
Viceroy sums up its research by stating that it believes Grenke AG stock is uninvestable due to “blatant accounting fraud, including dozens of undisclosed related party transactions, and the complete lack of internal controls, right down to individual due diligence on customers.”
It’s worth noting that Viceroy posted two copies of its Grenke report to Germany’s financial regulator, BaFin, before publishing it. The regulator has since announced that it is looking into allegations of market manipulation by Grenke following the critical report. It has also advised that it was investigating possible insider trading at Grenke even before the Viceroy report was published.
Grenke has been quick to reply to Viceroy’s allegations.
On 15 September, the company issued a news release stating that:
Then, on 17 September, Grenke published another news release, stating that:
“Fraser Perring is a professional, and when he leans out the window like that, then it's worth listening to. I cannot say whether the allegations are true, only insiders know. Some of the allegations sound more plausible, others less so,” he commented this week. He also said: “Unless there is a very good response from the company to the allegations on Friday, I see no reason for investors to hold the stock. We are investors with a long-term perspective and therefore we like to know what we are investing our money in. A stock that gets caught in such a vortex is for people looking for the thrill that we'd like to avoid.”
Looking at insider transaction data, it’s interesting to see that one insider has purchased Grenke shares since the Viceroy report was published.
The insider was Florian Schulte, who sits on Grenke’s Supervisory Board. Schulte – who has a background in corporate finance and strategy – purchased 3,500 shares on 16 September at a price of €35.87 per share. The total cost of the purchase was €125,554.
#Grenke AG: Ist das ein neues Signal an die #Investoren? Neuer #Insider-KAUF (16.09.) durch AR Florian Schulte (Experte für Strategie und Management, seit 2010 im AR) --> 3.500 #Aktien für rd. 125 TD€ (zu 35,87 €/Stk.) via Deutsche #Börse geordert !— insider_börsenbrief (@IB_Redaktion) September 17, 2020
This insider purchase is an encouraging development. However, it would be nice to see some insider purchases from members of Grenke’s Board of Directors such as Chair of the Board Antje Leminsky and Sebastian Hirsch – who is responsible for Controlling, M&A, Treasury, Legal, Taxes, and Investor Relations. So far, there have been no purchases from the four members of the Board of Directors.
That said, we have observed plenty of buying from members of the Board of Directors in 2020. When equity markets were falling in February and March, Leminsky purchased Grenke stock as did Hirsch and Mark Kindermann. Meanwhile, Gilles Christ – who is responsible for Marketing, Sales and the Franchise system – purchased stock in both June and early September.
Source: 2iQ Research
We will point out that since 14 September, the company has not engaged in any share buyback activity.
Grenke AG is the third-highest active short position in Germany by BlackRock Investment Management.
Source: 2iQ Research
In total, 3.3% of the company's outstanding shares are being shorted. This figure is not particularly high. By contrast, the most shorted German stock right now, Shop Apotheke Europe, has 13.6% short interest at present. It’s worth pointing out that no institutions have taken new short positions since Viceroy’s report was published on 14 September.
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