AMD – The Obituary

Viceroy analyze CTS Labs’ report exposing fatal security vulnerabilities across AMD products

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CTS Labs, a cyber-security research firm, released its findings on These findings demonstrate that AMD’s key products, and it basis for profitability and growth, the EPYC and Ryzen processors, contain severe and pervasive security flaws that put users and organizations at an unacceptable and damaging risk. We understand that these flaws are difficult, some practically impossible, to patch.
We believe that AMD was compelled to release products as quickly and cheaply as possible as it was falling behind its competitors. This has led to what appears to be complete oversight or negligence of security fundamentals of AMD’s products, which promote an evidently misguided competitive advantage – particularly with its Secure Processor (a.k.a. Platform Security Processor or PSP) – of providing “the greatest peace of mind on every AMD product.”. Nothing could be further from the truth.
Viceroy, in consultation with experts, have evaluated CTS’s report. We believe the issues identified by CTS are fatal to AMD on a commercial level, and outright dangerous at an international level.
In light of CTS’s discoveries, the meteoric rise of AMD’s stock price now appears to be totally unjustified and entirely unsustainable. We believe AMD is worth $0.00 and will have no choice but to file for Chapter 11 (Bankruptcy) in order to effectively deal with the repercussions of recent discoveries.

Date: 13 Mar 2018

ProSieben – TV’s real House of Cards

ProSieben’s (ETR:PSM) growth story is a lie: earnings manipulation, huge put liabilities – Published March 6, 2018

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ProSiebensat.1 Media SE (ProSieben) is a European media company focused in the German-speaking TV and digital market. The company’s core business is advertising-financed free TV, supplemented by digital segments built by a diversification campaign over the last half-decade.

Diversification has proven a costly and ultimately unsuccessful strategy. Viceroy believes ProSieben is a highly leveraged entity with non-performing subsidiaries offering no synergies. ProSieben’s core business – which has carried ProSieben’s investment losses – appears to be in accelerating decline, with a potential death knell spurred by the EU’s implementation of its General Data Protection Regulation (GDPR).

  • ProSieben’s acquisition and expansion strategy has been catastrophic, unfocused, and expensive – the company is currently attempting to control the damage caused. Many expensive investments are loss-making, hidden through segment accounting gimmickry, and offer no synergies. It is unlikely that ProSieben will be able to offset losses through divestment. There is no clear rhyme or reason to their business and such disjointed segments have proven difficult to manage and integrate.
  • Viceroy believes ProSieben’s non-cash barter transactions have artificially boosted revenues by EUR 210m in 2016: almost 50% of net income. Viceroy believe ProSieben’s media-for-equity and media-for-revenue transactions will never be realized in cash because investments have been pulled from the bottom of the barrel. Despite classifying these transactions as revenue items, ProSieben does not appear to adjust its operating cashflows to reflect this non-cash item, as equity/investments are inherently not a working-capital account.
  • ProSieben has subsidized a fabricated digital “growth story” using cash flows from its TV advertising business and idle TV advertising inventory. As its core business declines, ProSieben can no longer counterbalance its underperforming digital segments – the earnings structure is on the verge of collapse.
  • Significant unmet financing needs and dividend commitments far outweigh ProSieben’s cash flows. We believe shareholders will inevitably be subject to increasingly dilutive equity raises. Outstanding amongst these are ProSieben’s acquisition-related put liabilities which amounted to EUR 366m as of EOFY 2016.
  • ProSieben’s unconditional put liabilities have the characteristics of former management “bonuses” which bypass the consolidated income statement and stagger the company’s cash outflows (despite being unconditional). This allows ProSieben to consolidate entities (through majority ownership) without full cash outlay and minimizing P&L effects.
  • ProSieben has lost at least 14 senior executives & board members in 2017 alone. It is very telling that almost the entire finance-related management team has left the company within that period. It seems the people most familiar with the true financial state of ProSieben have jumped ship. The collective Executive Board and Supervisory Board directly hold a mere 65,244 shares in ProSieben as of December 31, 2017. This is equivalent to 0.0% of the share capital.
  • ProSieben is locked-in to new “output deal” contracts with major US studios to the tune of EUR 3,022m which it acknowledges does not meet the appetite of German viewers. Viceroy believe this will substantially increase costs in a declining market – a margin-trimming exercise.
  • The head of ProSieben’s M&A team who processed an acquisition was employed by the seller a short period after. Viceroy believe the transaction was extremely favorable to the sellers.
  • The Company’s dividend rates are fiscally irresponsible and unsustainable. Viceroy believes the capital raise in November 2016 which followed a large dividend payout was totally nonsensical.

Viceroy believes that ProSieben will be forced to issue another capital raise or cancel its dividend to zero to deal with these problems.

ProSieben displays all the signs of a business in an advanced state of decay in every operating segment. Viceroy believes that these issues have gone unattended for too long, and a correction is imminent as ProSieben’s market becomes stressed.

We value ProSieben at EUR 7.51 per share, representing a 75% downside on the closing price at March 5, 2018.


*Edit – 6 Mar 2018 – Correction on Figure 1.

Capitec’s inadequate response to Viceroy

A perfect example of why Viceroy don’t “engage with management” – they don’t answer our questions.

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Viceroy issued an open letter to Capitec’s board of directors on 20 February 2018, responding to their invitation to engage with management and field our questions.

A full copy of our letter can be found here:

Capitec replied to our letter on 22 February, 2018 via email, however provided no straightforward responses to any of our questions. At best, Viceroy received numerous largely insignificant statistics and tangential statements.

Capitec’s full response to our letter is attached to this report as Annexure 1.

Viceroy has been criticized for not engaging with management prior to publication of our reports. Capitec’s response is a prime example of why we choose not to. We maintain our recommendation that Capitec should be subject to an external, independent regulatory investigation, which we believe will result in Capitec being placed in curatorship in order to protect its consumers.

The curious case of Mad River Community Hospital

Viceroy present further evidence of MiMedx illegally selling on reimbursement, adding our already extensive evidence of pervasive fraud.

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Viceroy has obtained documents detailing a legal dispute between MiMedx and Mad River Community Hospital (“Mad River”). The documents clearly outline MiMedx’s fraudulent sales methods including misrepresenting reimbursement rates for products and “marketing the spread”.

This report details the serious misconduct and underhanded sales tactics of MiMedx personnel in California, which executive management were certainly aware of given the ensuing litigation. As we have demonstrated over 20+ reports, these types of improprieties are commonplace throughout the organization. Never before have our legal advisors or consultants come across such gross and serious misconduct.

The Mad River documents also show MiMedx engaged in “selling on reimbursement”, contrary to a several laws and regulations and some alleged MiMedx policies.

  • MiMedx sued Mad River for non-payment of invoices for EpiFix and AmnioFix products. Unfortunately for MiMedx this is where the story becomes compelling for law enforcement and regulators.
  • MiMedx misrepresented to Mad River the reimbursement rates for its EpiFix and AmnioFix products, as well as misrepresenting insurer’s attitudes towards these products. Several insurers considered MiMedx products “experimental and un-reimbursable”.
  • Following Mad River’s failure to pay, MiMedx sent “reimbursement” specialists to Mad River who upheld that MiMedx’s represented reimbursement rates were correct. Mad River believes that this was simply a manner of continuing the ruse while raising further invoices.

The Mad River filings portray (we believe accurately) MiMedx as third-rate con-artists.

Contrary to Parker H. Petite’s rhetoric of ‘Good Business Acumen’ and persistent denials of “marketing the spread”, this report will unlawful practices that MiMedx, including “marketing the spread”. This is the very tip of the iceberg as law enforcement and regulators have been made aware of.

It is Viceroy’s intention to continue the dialogue with MiMedx’s auditors and regulators to bring about the prosecution of Parker H. Petit.

In the wake of mounting evidence of fraud, illegal revenue recognition systems, retaliation against whistleblowers and concealing evidence from investors, we immediately call for Parker H. Petit’s resignation.

Viceroy responds to Capitec

On January 30, 2018 Viceroy Research released our report on Capitec (JSE:CPI) citing a need for large impairments and regulatory intervention.

The issues expressed by Viceroy have been reflected in a letter from Benguela Global Fund Managers to Capitec also raising concerns about Capitec’s lending practices[1]. This report presents the results of Viceroy’s further investigation into Capitec and a rebuttal of Capitec’s responses to Viceroy and Benguela.

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  • Since the publication of our last report, Capitec has disclosed that an extraordinarily large portion of its subprime, highly indebted customers who miss payments on their loans are somehow able to find the money to “catch up” or “cure” their arrears. This is suspicious.
    • Numerous former Capitec staff and 5 prominent debt counselling firms with proprietary datasets on South African unsecured lending support our thesis that this “curing” method is how Capitec hides the disastrous underlying performance of its loan book. If a borrower in arrears is able to beg or borrow the funds from a secondary lender to pay down their arrears and make themselves “current”, Capitec immediately offers them a new, larger loan. The borrowers use this new, larger Capitec loan to pay off the secondary lender used to cover the arrears.
    • Analysis of tens of thousands of Capitec borrowers’ datasets within debt counselling firms show consumers were able to get new loans after paying down their arrears the day prior. Thus, we can state empirically that this practice is still occurring. We contrast this with the lending criteria of a Standard Bank or Absa where there is a “cooling off” period before a borrower formerly in arrears can seek a new loan – to prevent exactly this behavior. By offering upsized loans to people who have just cleared their arrears, Capitec management is able to say with a straight face that they do “not lend into arrears”. This is TRUE in fact – but not in substance.
    • While the borrower is getting more and more indebted and is still unable to pay their debts, lending to people who were immediately prior in allows Capitec to artificially generate “cures”, unsustainably increase its loan book, charge massive initiation fees and create a façade of quality within its consumer base.
    • Well over half (70% – 80%) of Capitec consumers in debt counselling were issued new loans prior to repaying their existing loans.
  • Viceroy have obtained communications from Capitec Head Office dated 8 February 2018 to local branches advising that it has amended the number of allowable loans per customer. Reading between the lines, Capitec appear to be tightening or relaxing lending rules in order to achieve the greatest possible return as opposed to the consumers ability to repay those loans.
  • Viceroy has obtained evidence of Capitec intentionally abusing the debit order system to ensure its debits take priority ahead of other lenders.
  • Following the publication of our last statement several media outlets have reported on CEO Gerrie Fourie’s purchase of ZAR 1.5m of Capitec shares on the open market, presenting this as a show of faith in the company. We believe this is intentionally narrow-minded when viewed in the context of the net market sale of ZAR 49m worth of Capitec shares by Fourie in 2017. Collectively, directors sold ZAR 406m Capitec shares on market in 2017 alone.
  • We respond systematically to Capitec’s poorly constructed rebuttal of our prior report.

Capitec’s behavior has led to material overstatement of the quality of the book and substantial under-provisioning. We note the South African Reserve Bank (SARB) described Capitec as being liquid and solvent on the basis “of the available information”. Evidence suggests the available information is being deliberately distorted by Capitec management and we believe that as a matter of prudential supervision the SARB must investigate the lending practices at Capitec. We are providing this data to SARB and the NCR.

Viceroy continues to believe that Capitec is fundamentally uninvestable and reiterate our recommendation that an investigation by an independent body is launched in the face of the evidence presented in our research.


Viceroy comments on SARB statement

Viceroy comments on information available to the South African Reserve Bank regarding Capitec:

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In response to Viceroy’s recent report on Capitec (JSE:CPI), the South African Reserve Bank (SARB) decided to vouch for Capitec. Indeed, it decided to stake its reputation on the accuracy of the company’s accounts. Below is their statement in full:

“The South African Reserve Bank (SARB) notes a report by a US based fund manager. As part of our mandate, we monitor the safety and soundness of all banks, including Capitec Bank Limited (Capitec). According to all the information available, Capitec is solvent, well capitalised and has adequate liquidity. The bank meets all prudential requirements.”

The South African Reserve Bank has a responsibility to determine whether the information provided to them – and on which they base their regulatory decisions is accurate. We do not think it is.

The SARB has, at this point, a responsibility to perform a full regulatory inspection of Capitec. Viceroy remains firm in its belief that this will result in SARB placing Capitec into curatorship.

Viceroy will shortly respond to Capitec’s press release in relation to our report.