VGI Partners Versus Corporate Travel Management Ltd

Australian travel management business Corporate Travel Management Ltd (ASX: CTD) is the latest target in a string of short seller reports on ASX-listed companies.

This extensive short report is produced by VGI Partners. It follows high profile reports on Slater & Gordon (also from VGI) and Blue Sky Asset Management Ltd (ASX: BLA) (written by Glaucus).

What’s Going On?

According to Fairfax reporting, Corporate Travel found itself the target of the VGI short report due to 20 “red flags”, ranging from accounting policies to (allegedly) empty offices.

As a short-selling hedge fund, VGI stands to profit from the decline in Corporate Travel’s share price. If you’re new to hedge fund strategies, click here to learn how and why they use shorting to make money.

According to an ASX statement, Corporate Travel’s board of directors first heard of the report on Sunday, via media reporting. They had not spoken to VGI about its concerns.

On Monday morning, the directors requested a trading halt while they prepared a response to VGI’s claims. According to Commsec, an indicative opening price for the company’s shares is well below the last traded price (although it was lower before the response).

Management Response

In a statement to the ASX this morning, an update read: “Corporate Travel Management (ASX: CTD) has today provided a comprehensive response to a research report by VGI Partners.”

According to Corporate Travel’s management, just two of the concerns have merit.

“…one of which relates to the need for the Company to keep its website updated with its office locations. The second relates to not using the term ‘patented’ in relation to its proprietary technology.”

And the other 18 concerns?

“In the Board’s opinion, the rest of the report either misunderstands or misrepresents the Company’s financial performance, governance and business model.”

For smaller shareholders who perhaps aren’t up-to-date with accounting policies and practices, it seems to be a case of he-said-she-said or who do you believe the most.

Is Shorting Wrong?

Opinions make a market. For, against and indifferent. If everyone agreed on everything no-one would make money.

Indeed, every investor has the right to have ‘concerns’ about investments. Investors trade in spite of risks, not in the absence of it. And good companies should be able to defend concerns.

In my opinion, the contentious issue with these types of situations is one party has a very strong opinion, a large following and, at least it seems from this reaction, an ability to move the market.

However, could and should there be a more efficient and fairer mechanism to deliver potentially market-moving reports like this to all investors?

That’s a conversation best reserved for people far more intelligent than this author.

P.S. I recently sat down with one of them to talk about it…

An Interview With 1 Of Australia’s Top Short Sellers

The Rask Group’s Australian Investors Podcast is fast becoming Australia’s #1 podcast for serious investors. It provides unique insights from Australia’s best investors, entrepreneurs, authors and financial thinkers. Download the latest episode free on iTunes, Castbox, YouTube or wherever you choose to listen.

Here’s a timeless interview with Aussie hedge fund investor, Ben McGarry.

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