Insider Buying

Grenke AG short attack: what does the data say now?

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In mid-September, shares in German leasing company Grenke AG (GLJ:GR) fell sharply after short seller Viceroy Research published a damning report on the company. At the time, we took a look at both the insider transaction data on Grenke and the short selling data on the stock in order to provide investors with a more complete view of the situation.

Since our last report on Grenke, there have been a number of interesting developments. As a result, Grenke’s share price has risen from its September low of €24 to €35. That is a significant rebound, however, the share price remains a long way below the €55 to €60 level it was at in early September.

Here, we will look at the recent developments and also take another look at the insider transaction and short selling data to see if this data provides any new insights.

2020-10-21 (2)     Source: 2iQ Research

Grenke: company updates

Since Viceroy’s Grenke report was published, the German leasing company has made a number of announcements:
  • On 21 September, Grenke said that its founder Wolfgang Grenke would temporarily give up his seat on the supervisory board in the wake of Viceroy’s report. The company also said that it was studying changes to its franchise model and that it would commission an independent auditing firm to examine the acquisitions of the franchises. The Viceroy report said that Grenke had bought various franchises over the years without disclosing that corporate insiders, including Wolfgang Grenke, already controlled those franchises and stood to profit from the transaction.
  • On 24 September, Grenke advised that it had mandated Warth & Klein Grant Thornton, one of the leading auditing companies in Germany for medium-sized companies, for an independent audit on its takeover of franchise companies.
  • On 28 September, Grenke said it was cooperating with Germany’s financial regulator, the Federal Financial Supervisory Authority (BaFin), in relation to a special audit. Antje Leminsky, Chair of the Board of Directors of Grenke said: “We have assured full transparency and, of course, full cooperation with the regulators right from the beginning. It is in the interest of Grenke AG, its employees, business partners and investors that the unsubstantiated accusations that have been made are quickly cleared up. The investigation will further contribute to this.”
  • On 5 October, Grenke announced that auditor KPMG had submitted the status on its cash and cash equivalents. For all bank balances of the Grenke Consolidated Group, KPMG requested written confirmations from the account-keeping institutions, including Bundesbank, for the two reference dates of 30 June, 2020 and 15 September 2020, immediately after the mandate was given. These were validated and evaluated. KPMG received bank confirmations for the bank balances of 98.5% (€1.06 billion) as of 30 June 30 and 98.6% (€0.96 billion) as of 15 September 2020.
  • Finally, on 20 October, Grenke provided an update on the status of the company-commissioned audits. The company said that franchise acquisitions audited so far can be deemed as positive and that no business model or business organisation anomalies have been found to date. 

Fund manager buying and selling

Since the Viceroy report was published, some institutional investors have added to their positions in Grenke stock, while others have reduced their positions.

One fund manager that has been buying Grenke stock since its share price fell in September is Dr Hendrik Leber of Acatis Investment. Leber was among those to support the company in the wake of the short attack. “Acatis has examined the allegations and has so far seen no reliable evidence for the allegations,” he said at the time.

Leber said he purchased 600,000 Grenke shares in the days after the short selling report was published to capitalise on the drop in the share price. And since then, he has purchased more shares. As a result, Acatis owned 9.99% of the company’s voting shares at the end of September. In the firm’s Acatis Gané Value Event fund, the weighting to Grenke has been increased from approximately 4.1% to 4.5%.

In his recent market commentary, Leber outlined nine reasons why he has increased his holding in Grenke. One reason is that he believes Viceroy’s claims lack coherence and substance. Another is that Acatis has undertaken its own deep-dive into Grenke and believes Viceroy’s claims are either fabricated or exaggerated.

 

However, not all fund managers have seen the share price weakness as an opportunity.

One fund manager that has sold out of the stock is Alexander Darwall, manager of Devon Equity Management’s European Opportunities trust. Previously, Darwall had a large position in Grenke. At the end of August, 5.25% of the trust was invested in the stock. He has since offloaded his entire holding in the company.

Broker price targets

Interestingly, since the Viceroy report was published, only one broker has cut its price target for Grenke. That was HSBC, which cut its price target from €89 to €65 on 9 October. HSBC still rates the stock as a ‘buy’, however. Of the five brokers covering the stock, four see it as a ‘hold’ and one sees it as a ‘buy.’

     Source: Bloomberg

Insider transaction data

Looking at the insider transaction data, there has been one insider purchase since our last report on the stock. That was a very small purchase from Florian Schulte, who sits on Grenke’s Supervisory Board. He purchased 230 shares at a price of €33.80 on 17 September, spending €7,774 on stock. This was after the insider purchased 3,500 shares on 16 September at a price of €35.87 per share.

GLJ-SN     Source: 2iQ Research

Back in September, we wrote: “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.” We think it’s interesting that these top-level insiders have not purchased shares in the last month.

Short selling data

On the short side, there are currently three institutions that have short positions above 0.50% on Grenke. These are BlackRock Investment Management, Gladstone Capital Management, and Wellington Management Company. Of these three, BlackRock Investment Management and Gladstone Capital Management, had short positions above 0.50% in September. In total, 3.2 million shares are on loan at present.

    Source: 2iQ Research, Astec Analytics        

It’s interesting to see that both Gladstone Capital Management and Wellington Management Company have increased their short positions recently. Since our last report, Gladstone has increased its short position from 0.73% to 0.81%, while Wellington has increased its short position from 0.48% to 0.53%. This indicates that these institutions expect further share price weakness.

BlackRock has maintained its short position at 1.89%. Meanwhile, Odey Asset Management has either closed its short position or reduced it below 0.50% recently.

                                               Source: 2iQ Research

It’s worth pointing out that analysts at Opto calculate that BlackRock would have made a gain of nearly €30 million when Grenke’s share price tumbled in mid-September.

Valuable insights

In conclusion, the data on Grenke continues to provide valuable insights.

We think it’s interesting that no insiders have purchased Grenke shares recently. Even after the company has issued positive news, no insiders have purchased stock. As we said in September, if Grenke insiders are truly confident that the company is in the clear, we would expect to see some more buying activity in the near future.

It’s also interesting to see that two short sellers have increased their short positions in Grenke recently. This indicates that they see further share price weakness on the horizon.

Overall, the data suggests that Grenke may not be completely out of the woods just yet.