Bull’s Eye: MTN and Citron’s short and sour Jumia gamble
What now after short-seller Citron’s vicious ‘sell’ call on Jumia, MTN’s great big hope for e-commerce in Africa?
We’re all familiar with fluffy opinions on stocks, mostly positive, shared by talking heads in fund management who we accept are goosing the chances of companies they fancy. It does us no harm to listen, and sometimes act. Warren Buffett is the godhead of such benign advice, and we know it usually works in everyone’s favour.
That’s the “buy” side. The “sell” side is a different beast. Institutions prize their star analysts because their research makes money. It is proprietary information for sale, and we in the pilchard school of investment only feel the effects on prices after sell-side information has been bought and acted upon. This is all fine and above board: we can only hope our dear retail investment managers have purchased the knowledge and taken steps on behalf of our unit trusts and pension pots.
But what about when the sell-side goes rogue? When proprietary information, duly shared to clients, is then mass-disseminated to further jimmy the intended price of the targeted stock? We seldom see this from well-behaved sell-side analysts in SA, but it is common elsewhere.
The method does not always work. Bill Ackman, a noted “whale” of a hedge fund manager, was humiliated by his long-running conviction that Herbalife would fall to zero. Ackman’s short position, despite his publicly vented hot air, was a dud.
The same thing happened in SA when two-bit short-selling firm Viceroy tried and failed in 2018 to convince us that Capitec was a loan shark on the skids. Viceroy’s initial report was damaging to the Capitec share price, which suited short-sellers in the know, but in the longer term the strategy failed. The analysis was simply wrong. Earlier, the outfit had correctly predicted the Steinhoff disaster, and presumably made a mint all the way down. Viceroy and their ilk know they won’t connect with every strike, but when they do ...
Now, what to make of MTN, and its large and vulnerable stake in e-commerce company Jumia? The “Amazon of Africa” had a fabulous April, listing on the New York Stock Exchange to sheer rapture. Soon the share price was up by almost 250%.
Then on May 9 Citron Research issued a damning claim that Jumia was an “obvious fraud” that had lied in its initial public offering prospectus and was not only a “stagnant business” but one that was worth nothing.
MTN was the best-performing share on the JSE in April, rocketing 16.64% on the back of its feel-good investment in Jumia. One might have expected a cataclysmic fall in MTN after the Citron kick in the pants, but the selloff has been mild. Volumes doubled last Friday, and the price fell below R100, but the share at present shows no sign of capitulation. On Wednesday it continued to bob just below the R100 mark.
Citron’s broadside on Jumia, though, worked well. Last week the share collapsed by nearly a quarter. The Financial Times raised an eyebrow but seemed happy to wait and see how Jumia might respond via the only way it can – by demonstrating that it can overcome infrastructure and logistical problems in Nigeria and Egypt, and prove that its online shopping model is a winner.
MTN is the biggest shareholder in Jumia, but next to it is Mastercard and the likes of Goldman Sachs. How will they react? Business Day has confirmed that MTN said (long before the Citron report) that it wants to reduce its stake in Jumia to about 20% from 30%.
The Citron report has fouled MTN’s selloff plans to the tune of a few billion rand, which no doubt peeved management and shareholders hoping for a nice cash pile to plough into its more familiar field of telecommunications. Either way it is pretty pointless getting indignant about Citron and its pack of short-selling sharks. Sooner or later we’ll see our familiar buy-side suits on TV soothing us and saying it’s all going to be alright.