Nothing has happened since Friday.
Oh, well, I might as well mention Universal Travel Group, a story brought to my attention by the Divestor. It was savaged by John Hempton of Bronte Capital in a September 15 post … Mr. Hempton makes some very interesting points, which should be trivially easy to refute by a clean company:
It is pretty clear from this analysis that the main reason for owning the stock of Universal Travel Group is dubious. The online booking engine is dysfunctional – and the massive margins that it claims (84 percent for plane tickets) are thus also dubious.
All the profits that the company claimed it made out of the travel booking business (by far the bulk of its claimed profits) are similarly dubious – though there is a real travel company which might be making some profits.
The company claims in its most recent quarterly balance sheet to be carrying 43 million in cash and accounts receivable of almost 20 million. If the airline and hotel business are dubious then the profits generated that cash are dubious. In that case the cash itself is dubious.
I know people will buy this as Ben Graham net-net stock if it collapses. Unless this company can get a big four audit firm to sign-off for them I think you can – at least for the moment question the entire balance sheet.
What makes it interesting is the weakness of the response. On the day the blog post appeared, they issued a press release:
Universal Travel Group (NYSE: UTA) (“Universal Travel Group” or the “Company”), a leading travel services provider in China, today responded to allegations that appeared in the online blog by Bronte Capital. Universal Travel categorically denies all the allegations contained in the blog. The Company is consulting with its legal counsel as to the legal options available to it and will be aggressively pursuing all legal remedies against Bronte Capital and John Hempton for the damages caused to the Company and its shareholders.
“Categorically denies all the allegations”, eh? Very nice. Where’s the detail? Maybe there will be something in the conference call:
Universal Travel Group (NYSE: UTA) (“Universal Travel Group” or the “Company”), a leading travel services provider in China, today announced that it will hold a conference call at 9:00 a.m. ET on Wednesday, September 29, 2010, to discuss and answer any questions investors may have regarding the Company’s business and financial statements.
…
To participate in the call, please dial (877) 779-7834 five minutes prior to the 9:00 a.m. start time and reference conference ID number 12534724. International callers should dial +1 (706) 902-2087.A replay of the call will be available for 14 days beginning Wednesday, September 29, 2010, at 10:00 a.m. Eastern Time. To listen to the replay, dial (800) 642-1687 and enter the conference ID number 12534724. International callers should dial +1 (706) 645-9291. An audio recording will also be available on the Company’s website at http://us.cnutg.com .
…
The Company’s headquarters and main base of operations is in Shenzhen in the Pearl River Delta region of China. More recently, Universal Travel Group has expanded its business into Western China, opening a second home base in the Chongqing Delta region, and other attractive, under-penetrated tier-two travel markets throughout the country.
C”mon, now! Shenzhen is not exactly the end of the earth any more. It’s basically next door to Hong Kong. And they couldn’t even get one western business reporter to walk around their headquarters and meet some of their “more than 200 professional staff”? Even Enron managed a better Potemkin village than that!
What gets me, though, is the complete lack of analysis I’ve been able to find. It has been over a week since the post appeared – and the stock took a big hit – but representative analysis is:
Universal Travel (NYSE: UTA): This is the latest casualty of a short attack based on rumor in innuendo this week. The free fall was precipitated by a professional short seller- John Hempton of Bronte Capital wrote a scathing “expose” wherein he demonstrated the company’s web sites didn’t provide him with Western style online travel services. He concluded the company is nothing but a phone in travel service, and claimed their numbers must be fraudulent based on their labor overhead vs their revenues. Conveniently, Hempton is located in Australia, and therefore enjoys a level of insulation from both civil law suit and SEC investigation.
There’s a few more examples of companies falling victim to either their own self induced foibles or fabricated attacks from those standing to gain. It’s the perfect storm for the short sellers to have their way with the public- the market environment is one in which investors will sell first to preserve capital, and find out the truth later. This group of short sellers is extremely well organized and knows how to work the media to their benefit.
Not a single point is addressed other than the condescending (and puzzling, considering their bias) sneer that we can’t judge Chinese web design by western standards. Just an ad hominem attack on short-sellers and vagueness.
I take no view on this stock. Before I took a view I would get my guy in Hong Kong to go across the border for an afternoon and knock on their door, among many other things. But the weakness of the management response is … interesting.
Wonder of wonders, the Canadian preferred share market actually fell today, with PerpetualDiscounts down 18bp and FixedResets losing 27bp – taking the median weighted-average yield of the latter back up to 3.00%. Volume continued to be heavy.
| HIMIPref™ Preferred Indices These values reflect the December 2008 revision of the HIMIPref™ Indices Values are provisional and are finalized monthly |
|||||||
| Index | Mean Current Yield (at bid) |
Median YTW |
Median Average Trading Value |
Median Mod Dur (YTW) |
Issues | Day’s Perf. | Index Value |
| Ratchet | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0546 % | 2,123.5 |
| FixedFloater | 0.00 % | 0.00 % | 0 | 0.00 | 0 | -0.0546 % | 3,216.9 |
| Floater | 2.87 % | 3.28 % | 77,922 | 19.03 | 3 | -0.0546 % | 2,292.9 |
| OpRet | 4.88 % | 0.20 % | 76,105 | 0.17 | 9 | 0.1158 % | 2,378.1 |
| SplitShare | 5.92 % | -32.35 % | 62,609 | 0.09 | 2 | -0.2645 % | 2,379.7 |
| Interest-Bearing | 0.00 % | 0.00 % | 0 | 0.00 | 0 | 0.1158 % | 2,174.6 |
| Perpetual-Premium | 5.66 % | 5.03 % | 141,991 | 5.33 | 14 | -0.0278 % | 2,003.1 |
| Perpetual-Discount | 5.50 % | 5.51 % | 203,842 | 14.59 | 63 | -0.1757 % | 1,984.2 |
| FixedReset | 5.23 % | 3.00 % | 326,029 | 3.28 | 47 | -0.2676 % | 2,273.7 |
| Performance Highlights | |||
| Issue | Index | Change | Notes |
| SLF.PR.G | FixedReset | -2.37 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-09-27 Maturity Price : 25.45 Evaluated at bid price : 25.50 Bid-YTW : 3.61 % |
| TRP.PR.B | FixedReset | -1.72 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-09-27 Maturity Price : 25.11 Evaluated at bid price : 25.16 Bid-YTW : 3.48 % |
| POW.PR.C | Perpetual-Discount | -1.40 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-09-27 Maturity Price : 24.36 Evaluated at bid price : 24.65 Bid-YTW : 5.89 % |
| CM.PR.K | FixedReset | -1.28 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-08-30 Maturity Price : 25.00 Evaluated at bid price : 27.01 Bid-YTW : 2.98 % |
| SLF.PR.C | Perpetual-Discount | -1.04 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-09-27 Maturity Price : 20.00 Evaluated at bid price : 20.00 Bid-YTW : 5.60 % |
| BAM.PR.J | OpRet | 1.13 % | YTW SCENARIO Maturity Type : Call Maturity Date : 2014-04-30 Maturity Price : 26.00 Evaluated at bid price : 26.80 Bid-YTW : 4.28 % |
| GWO.PR.H | Perpetual-Discount | 1.33 % | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-09-27 Maturity Price : 21.72 Evaluated at bid price : 22.05 Bid-YTW : 5.51 % |
| Volume Highlights | |||
| Issue | Index | Shares Traded |
Notes |
| BNS.PR.Q | FixedReset | 76,625 | Scotia crossed 30,000 at 26.70; TD crossed 25,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2013-11-24 Maturity Price : 25.00 Evaluated at bid price : 26.65 Bid-YTW : 2.99 % |
| TD.PR.G | FixedReset | 51,698 | TD crossed 20,000 at 28.21. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-05-30 Maturity Price : 25.00 Evaluated at bid price : 28.15 Bid-YTW : 2.93 % |
| RY.PR.I | FixedReset | 49,999 | RBC crossed 40,000 at 26.70. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 26.65 Bid-YTW : 3.08 % |
| SLF.PR.C | Perpetual-Discount | 45,657 | Nesbitt crossed 32,000 at 20.21. YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-09-27 Maturity Price : 20.00 Evaluated at bid price : 20.00 Bid-YTW : 5.60 % |
| RY.PR.R | FixedReset | 45,040 | RBC crossed 25,000 at 27.85; Desjardins crossed 11,000 at the same price. YTW SCENARIO Maturity Type : Call Maturity Date : 2014-03-26 Maturity Price : 25.00 Evaluated at bid price : 27.79 Bid-YTW : 3.07 % |
| RY.PR.A | Perpetual-Discount | 34,540 | YTW SCENARIO Maturity Type : Limit Maturity Maturity Date : 2040-09-27 Maturity Price : 21.54 Evaluated at bid price : 21.85 Bid-YTW : 5.13 % |
| There were 53 other index-included issues trading in excess of 10,000 shares. | |||