Spruce Point Shorts Globant SA
Spruce Point Capital, the New York-based short seller, issued a release today detailing a short position in Globant SA (NYSE: GLOB). The firm said in a release:
"Spruce Point has conducted a critical forensic and fundamental analysis of the Company. In our opinion, the current management is misportraying the organic revenue growth inherent in its technology outsourcing business. By leading investors to believe that it is achieving consistent 20% p.a. organic revenue growth, GLOB’s shares command an industry leading valuation. We estimate this has allowed insiders to quietly dispose or transfer of $80m in shares via an unusual dual-listing share structure in the US and Luxembourg. Spruce Point believes that GLOB’s organic growth rate has in fact been decelerating, and is now below target. We find evidence to suggest that management is growing dependent on accounting and financial presentation gimmicks to embellish a business that has generated negative cumulative free cash flow since coming public.
Spruce Point also believes the recent news that WPP’s CEO Martin Sorrell is under investigation for possible misuse of assets and allegations of improper behavior are a potential overhang for GLOB’s share price. WPP is GLOB’s largest shareholder (~20%), Mr Sorrell is a member of Globant’s Board of Advisors, and WPP represents $6m+ of related-party revenue for Globant.
As a result of our investigative analysis, we have issued a "Strong Sell" opinion, and a long-term price target of approximately $24.50 to $29.50 per share, or approximately 40% - 50% downside risk."