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02-March-2020: HY20 Financial Results release
Plus: HY20 Financial results presentation
And: HY20 Financial statements and Appendix 4D
Highlights of the HY20 results (compared to the prior corresponding period) include:
- Property revenue increase of 22% to $37.6m.
- Adjusted funds from operations (AFFO) per unit increase of 11% to 7.1 cents.
- Total Comprehensive Income earnings per unit increase of 16% to 8.9 cents.
- Increase of forecast FY20 AFFO to 13.5 cpu.
- FY21 DPU forecast of 11.28 cents, in-line with 4% growth target.
Their net tangible assets (NTA/NAV) per unit increased from $1.22 (June 30, 2019) to $1.27 (Dec 31, 2019). Their adjusted net asset value per unit including water entitlements held at market value rose from $1.80 to $1.84/unit over the same period. I'll update my valuation now to reflect that $1.84 value, as that's the most recent one we have for RFF now.
12-Feb-2020: Judgment regarding Bonitas litigation
Rural Funds Management Limited (RFM), as responsible entity for the Rural Funds Group (ASX: RFF) advises that a judgment in the legal proceedings against Bonitas Research LLC (Bonitas) and its principal, Matthew Wiechert, as disclosed 13 September 2019, has been handed down in the Supreme Court of New South Wales this morning. The Court gave judgment in favour of RFM, made declarations about the contraventions of the Corporations Law by Bonitas and Matthew Wiechert and will consider the assessment of damages on 6 March 2020. The Court found that Bonitas and Matthew Wiechert had made statements in Australia which “were false in material particulars and materially misleading” and were “deceptive and likely to deceive”.
A fully copy of the judgment is available at https://www.caselaw.nsw.gov.au/decision/5e4251d7e4b09d076393de17
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About Rural Funds Group (RFF)
RFF owns a diversified portfolio of high quality Australian agricultural assets. RFF’s investment objective is to generate a stable income stream derived from leasing its assets to suitable counterparts and capital growth through any appreciation in the value of those assets. RFF is a stapled security, incorporating Rural Funds Trust (ARSN 112 951 578) and RF Active (ARSN 168 740 805), trading under the ASX code ‘RFF’. Rural Funds Management Ltd (RFM) is the responsible entity of RFF.
Disclosure: I don't currently hold RFF shares, but I have held them at various times in the past and made good money by doing so.
I don't know if any of you read my previous straw here about Wiechert's ex-business partner at Glaucus Research, Soren Aandahl, describing their relationship as being similar to the collaboration between Paul Simon and Art Garfunkel that resulted in the very succesful band, Simon and Garfunkel, before Paul Simon (who Aandahl clearly thought he represented in the Aandahl/Wiechert relationship) felt he just needed to go out and do his own thing (had outgrown the relationship presumably). I questioned whether Wiechert was as good as their Glaucus record suggested, or whether most of that success had been down to Aandahl, with Weichert possibly believing that his own abilities were perhaps a little greater than reality might suggest - over time, now that he is operating without Aandahl. Perhaps this court judgement (in favour of RFF, and against Wiechert and his company, Bonitas) does back up my hypothesis. For one thing, he managed to make misleading statements IN Australia according to the judgement. That's something that I believe Aandahl avoids.
High Profile Shorting 101: Make your misleading statements in a jurisdiction where your target company can't touch you, then they can't sue you. Or perhaps even rely on the facts - and avoid the misleading statements altogether, where possible.
Reading through Weichert's original short thesis material, and then RFF's initial response, it seemed to me that Weichert didn't really have a very full understanding of how his target (RFF) was operating or was supposed to operate, and there appeared to be multiple holes in his thesis. For that reason I did suggest that unlike the previous Glaucus targets, RFF would almost certainly survive the attack, but would be wounded by it for a while. In particular, I thought Weichert's ascertion that RFF's value was actualy $0 was patently rediculous.
I think we can chalk this one up to RFF.
One thing that Weichert does seem to have done right however is to pick a half-decent name for his new company: Bonitas Research. The Latin word "Bonitas" is defined as goodness, integrity, moral excellence, kindness, benevolence, and tenderness. By contrast, Glaucus atlanticus is a species of small, blue sea slug.
Staying with that blue theme, but moving up the food chain somewhat, Wiechert's former Glaucus partner, Soren Aandahl, named his new company, Blue Orca Capital, named after the Orca, or Killer Whale.
Bucephalus Research, who also had a tilt at RFF, after Wiechert's Bonitas Research had already got well and truly stuck in, is named after Alexander the Great's horse, considered by some to be the most famous horse in history. Bucephalus Research claim that their purpose (or mission statement) is "Exposing Creative Accounting - To help clients reduce risk and outperform", and they describe Creative Accounting as "the legal abuse of shareholders". Fair enough. I'm not sure if they have landed too many punches on RFF either, or did any lasting damage. One positive is that RFF and similar types of companies (with similar structures) are going to have to focus more on being very upfront and transparent with their accounts going forwards so as to avoid more of these attacks, which are costly to defend, consume valuable time and resources, and distract management from their real jobs.
RFF will release their HY20 financial results on Monday morning (2 March 2020).
Further Reading: BusinessNewsAus.com article
09-Feb-2020: I haven't looked at RFF for a little while, but they are looking reasonably interesting once again. The high-profile short selling attacks of last year have faded into the background somewhat, and RFF are just getting on with business, and business seems to be reasonably good:
17-Dec-2019: Investor Newsletter
They have now sold all of their poultry assets, and have already invested some of the proceeds into further cattle properties which they view as likely to provide a superior return on investment compared to poultry farms, particularly as much of their poultry infrastructure was aging and in need of significant capital investment (now somebody else's problem). RFF have other cattle property purchases in their sights also.
Their latest newsletter (link above) has another interesting article in it by their Managing Director, David Bryant (who continues to accumulate further RFF shares himself on-market):
Productivity: The key to improving the world food supply, by David Bryant, RFM Managing Director:
Meeting the challenge of feeding more people better food.
If you are 60 years old, or claim to be 40 and a Monty Python fan, these lyrics should ring a bell:
"Just remember that you’re standing on a planet that’s evolving
And revolving at 900 miles an hour.
It’s orbiting at 19 miles a second, so it’s reckoned,
The sun that is the source of all our power."
Eric Idle and John Du Prez, The Galaxy Song, Performed by Eric Idle in The Meaning of Life, 1983.
Idle’s reckoning of 19 miles per second, is correct, which means our planet is moving at 110,000 km/h so that it can complete its journey around the sun every 365.25 days. While all of this is going on, we will experience the four seasons, the growth and senescence of the plants that sustain us…. and get one year older.
During the 52 weeks and 6.15 hours that it will take us all to complete our next circumnavigation, an additional 82 million people will join us here as permanent residents on planet earth. As an added bonus, the average wealth of all of us here on this speeding orb, will have increased by around 3.5%, driven by the fairly constant economic growth that is the product of the collective striving and inventiveness of what will soon be eight billion people.
These two forces, population and economic growth, are having profound, but differing effects on the agricultural systems required to feed us. They also have enduring effects on the value of agricultural land and the increasing productivity we must derive from it. [continues...]
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I don't have the room to copy more into this straw, but I recommend you read the rest of it by clicking on the link above. It's a good read.
My next excerpt is from further into the newsletter, in the "Rural Funds Group Update" section:
Redeployment of capital
Funds realised from the poultry asset sale [A$72m] will be partially used to acquire three cattle properties in Western Australia ($22.6m including transaction costs), and to convert a recently acquired sugar cane property ($1.6m including transaction costs) to a macadamia orchard. These acquisitions are examples of the two types of investment strategy RFM is pursuing, being the development of assets for:
- productivity gains; or
- higher and better use.
Both strategies aim to lift the value and income earning potential of an asset. The productivity strategy achieves this objective by enhancing a property’s ability to produce a given commodity. Whereas, the higher and better use strategy aims to transform the use of an asset to a different, more profitable commodity. Put simply, increased productivity or production of a more valuable commodity enhances the ability of the operator to generate higher profits, leading to a higher valuation and enabling the landlord to charge more rent.
The first of these strategies will be applied to the WA properties by: developing land for new improved pastures and forage crops, improving existing grazing areas with fertiliser and other inputs, increasing irrigable area, and improving operational functionality with new fences and cattle handling infrastructure.
The WA properties will increase the number of natural resource predominant assets to 16, comprising 14 cattle properties and two cotton properties. [continues...]
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As I have mentioned before, I sold out of RFF on valuation grounds prior to last year's short-seller attacks, but RFF are now trading back at more reasonable levels - in a trading range between $1.80-$2.00 (and they're in the lower half of that range currently), rather than the $2.20-$2.40 range they were stuck in between January and July last year, and they continue to pay a rising stream of dividends. They are unfranked, due to their structure (stapled security/trust structure) but based on their current 2.71 cps paid quarterly (10.84 cps annually), that's a 5.8% dividend yield based on their last traded SP of $1.86). Quarterly paid dividends could also be a benefit to income-orientated investors.
Interesting !
Correction: In my earlier "Short Sellers" straw (that I posted here yesterday), I mentioned that BLA was down to 18.5c now (BLA being another recent short seller target). They are, but they're not trading, and won't be trading ever again unfortunately. I've just been reading up on disasters like RFG and BLA and note that in their recent 30 July Market Update, the adminstrators of BLA have said, "The complex process of restructuring Blue Sky and its assets is expected to take months or years. With the review completed, a number of positions regrettably are in the process of being made redundant. All entitlements will be met in full for affected employees. Shares in Blue Sky will remain suspended from trading throughout the restructuring process. A return to shareholders is not anticipated based on current expectations. Accordingly, in the absence of any new material development not otherwise contemplated by this announcement, the receivers and managers do not expect to provide any further market updates in relation to the restructuring process."
That's that then. No more ASX announcements, no more trading of BLA shares, and no return to shareholders. Same outcome as QIN (Quintis). End value for shareholders: $0.
I have been expecting that outcome for RFG (Retail Food Group) for some time now. RFG were a different kettle of sardines [slippery little suckers!] RFG were targeted by investigative reporters who, to the best of our knowledge, were not involved themselves in actively shorting the company at the time. RFG got their fair share of shorting activity as a result of those investigations and news articles however. RFG are still talking about a conditional recapitalisation proposal, and asset sales, and they've had a little dead cat bounce on rumours of a recapitalisation (before they actually confirmed it coincidentally). I still expect the receivors and managers to be called in. It's really just a matter of when, rather than if, in my opinion. Owning shares in RFG is a real risky gamble IMHO. I don't of course. You never know if the next trading halt will be the last - the one they never recover from. You could double your money or more, but the odds are greater that you'll lose 100% of it. It's barge pole stuff.
RFF is not the same as RFG. From what I can ascertain up to this point, RFM, as the managers of RFF, haven't done anything shady, except for one formatting error in the notes accompanying one set of accounts and that one error was limited to that one note and didn't flow through to the accounts or affect their accuracy in any way. Time will tell of course, but I think the shorters have made their money already with RFF, and now the whole thing is just a distraction and a financial pain-in-the-arse for RFM & RFF. I do NOT think RFF are going to zero. However, I also don't think they're looking like a screaming buy at $1.81 (where they closed on Friday). They could easily hover around these levels, or a bit lower, for some time. But I don't think they're going into voluntary administration any time soon, because I don't think this attack by Bonitas has much real substance to it. For what that's worth.
10-Aug-2019: Remember Quintis (QIN, formerly TPS)? What about Blue Sky Alternative Investments (BLA)? They were both targeted by Glaucus, a short selling specialist company founded by Soren Aandahl and Matt Wiechert.
If you scroll down this list, you'll see that Glaucus had a price target of zero for QIN and $2.66 for BLA. Both got there.
QIN went to zero, and are now delisted. Voluntary Administrators were called in but ordinary shareholders got nothing - for a 100% loss.
BLA are now 18.5 cents/share, despite having traded at over $11.40/share when Glaucus first targeted them.
Soren Aandahl, former director of research at Glaucus, has started a new activist investment fund Blue Orca Capital.
Matt Wiechert's new venture Bonitas Research also focuses on short selling.
As reported in this May 2018 AFR article, "Blue Sky was a fantastic note on which to go our separate ways," Aandahl said in a phone interview. "If you think about it like a band, like Simon & Garfunkel, quite a lot of hits together, but at some point all Simon needed was to go out and do his own music. And that's exactly what's happening here."
Aandahl clearly sees himself as Paul Simon, who had a very succesful solo career after "Simon & Garfunkel" split. The success of Art Garfunkel was much more muted.
So, the Garfunkel of Glaucus (in Aandahl's eyes at least) is Matt Wiechert - and his new venture, Bonitas Research, has just targeted Rural Funds Group (RFF) and his price target for RFF is, once again (as with QIN/TPS), $0 (nil, zilch, nada).
I have a passing interest in this, as I had a small position in QIN in my SMSF (now worth $0) and I had a much larger RFF position in my main income/trading portfolio until I sold the last of them for $2.29 on the 14th June this year (2 months ago). I had originally bought 20,000 RFF at $1.11 and $1.115 in August 2015, and had progressively sold down the holding as they rose - particularly after they went above $2/share.
I also participated in all of their capital raisings during that time, while selling the equivalent number of shares on-market at the same time, because it always made financial sense to do so. Because their NAV was under $1.80 ($1.75 as at 31 Dec 2018), and I was on a capital gain of over 100%, RFF appeared to me to be a clear sell (for me at least) at over $2.25. And so I sold, and have no current exposure to RFF.
But I am interested. I'm interested to see if Bonitas is really just Wiechert's attempt to profit from his prior association with Aandahl, or if he really does know his stuff. On the surface of it, reading through his stuff, and reading through RFF's David Bryant's rebuttal of all of Bonitas' material on RFF, I think Wiechert's research has some pretty major holes in it. It is clear why Aandahl (not Wiechert) was the director of research at Glaucus. Glaucus did have a happy knack of highlighting real accounting issues and business practises that - once highlighted - tended to cause the market to view the target company is a much less favourable light. I'm not convinced that Matt Wiechert has that same skill to be honest. Time will tell.
That said, considering that RFF's own (most recently) stated NAV is $1.75/share, I don't consider the current price of $1.81 to present a compelling buying opportunity either.
I note that David Bryant has just loaded up by spending another $500,000 of his own money to buy more RFF shares at around $1.71, and two of his other three fellow directors have also been buying at around the same levels (but spending a lot less than Bryant), and at that level perhaps it does make some sense, especially as he has indicated that they will be reporting a higher NAV in 3 weeks (their FY2019 full year report). However, I would recommend people NOT rush in and load up too quickly, as these shorter attacks (the ones where they go public like this) can drag on for a bit, and this has only been week #1 - so far. While the vast majority of Bonitas' claims seem pretty baseless, the market remembers the bloated carcasses of prior short-selling targets - like BLA and QIN, and they are unlikely to completely dismiss this one. Not yet anyway.
https://www.bonitasresearch.com/company/rural-funds-asx-rff/
RFF: Response to Bonitas Research report
RFF: Investor webinar in response to Bonitas Research document
RFF: Further response to Bonitas Research document
RFF: Investor webinar recording available
RFF Investor Webinar recording
Further Reading:
https://www.valuewalk.com/2019/07/activist-short-seller/
Disclosure: I am currently neither long or short RFF. [I never short.]
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