(BFM Bourse) – The famous short seller suspects the CAC 40 group of overestimating its profits and its cash and accuses its controlling shareholder of “parasitizing” it.
Muddy Waters strikes again. The company of the famous short seller Carson Block, known in particular for having pointed out the financial fragility of Casino in 2015, this time targeted the scientific analysis group Eurofins.
Remember that a short seller sells the stock of a listed company without owning it, by borrowing the stock from shareholders of the targeted company for remuneration. The goal is to anticipate a plunge in the stock by selling it immediately, then buying it back at a lower price and therefore pocketing the difference.
To support their arguments and precipitate the fall of the stock in question, some famous short sellers publish financial reports incriminating the targeted company. Sometimes this makes it possible to uncover real frauds (like the Spanish Gowex, attacked by Gotham City Research), sometimes these attacks fail because the companies attacked provide convincing arguments (for example the French Vusiongroup in the face of criticism from Gotham City Research and from ShadowFall).
Known for having a certain taste for provocation and his acerbic tone, Muddy Waters therefore attacks the Eurofins laboratory.
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“Contradictions”
In a vitriolic report, the short seller heavily accuses the company. “At best, Eurofins has a parasitic controlling shareholder (the short seller refers to the Martin family, editor’s note) who has been siphoning money from the company for two decades. We believe, however, that Eurofins’ financial statements could contain significant overvaluations of earnings, cash balances and other asset values,” the short seller elaborates.
Muddy Waters points out “contradictions”. Eurofins’ revenues per employee are significantly higher than other companies in the “ICT” sector (tests, inspections, control) while its margins are more in line. This could be explained by higher remuneration per employee. However, the short seller assures that former employees of the company told him that apart from very senior executives running the divisions, Eurofins would be far from the best standards in terms of remuneration.
Muddy Waters also claims that the group’s auditors have, in the 2023 accounts, reclassified €682 million worth of receivables and liabilities under the 2022 accounts. The seller is also surprised that the company, although operating in a mature business, has “raised and consumed” billions of dollars in recent years to finance its growth.
“In our view, there is an explanation that unifies these and other contradictions: Eurofins is optimized for malfeasance. We don’t know exactly how deep the rot goes, but we suspect it extends to reporting on revenue, profit, liquidity and other asset accounts,” explains Muddy Waters.
Not a first attack
In detail, the short seller accuses the founder and general manager of Eurofins, Gilles Martin (who with his family owns 32.8% of the share capital and 66% of the voting rights), of having taken the money from the company to build its own real estate assets, via real estate transactions between the company and itself.
Muddy Waters also points to the company’s cash accounting which appears to be “designed to maximize confusion and inaccuracies, and even overstate.” Eurofins’ internal control also seems “shockingly deficient”, criticizes Muddy Waters.
“The internal audit team, which is based in Poland, appears to have minimal presence in the company. The external audit appears to have significant gaps in the liquidity confirmation process. At the same time, reporting on Eurofins’ cash could be intended to overstate cash balances,” continues Muddy Waters.
Contacted by BFM Bourse, Eurofins did not immediately respond to a request for comment.
For the moment, Eurofins shares are falling sharply. The stock lost 20% on the Paris Stock Exchange around 10:40 a.m., marking by far the biggest drop in the CAC 40.
This is not the first time Eurofins has been targeted by a short seller. At the end of 2019, the laboratory was attacked by Shadowfall which had already highlighted certain points raised by Muddy Waters, such as real estate transactions between the CEO, Gilles Martin, and the company. The short seller also criticized the complexity of the company’s structure.
This previous attack did not prevent Eurofins from joining the CAC 40 in September 2021. The company then benefited, of course, from strong demand for its tests linked to the pandemic. The group has since struggled to recover from the end of the health crisis. Its stock price was divided by almost three.
Julien Marion – ©2024 BFM Bourse
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