Sohn Conference Foundation – London 2018 Review

Aggressive accounting, secular growth and carbon credits

Hamlin Lovell
Originally published in the January 2019 issue

Sohn Conference Foundation has so far raised USD 85 million for various children’s cancer charities, including many in the UK, such as: Cancer Research UK Cambridge Institute (University of Cambridge); DKMS; Great Ormond Street Hospital Children’s Charity and Royal Marsden Cancer Charity. The flagship New York event will mark its 24th year in 2019, and the global footprint keeps expanding, with events being held in Australia, Brazil, Canada, Geneva, Hong Kong, India, London, Monaco, San Francisco and Tel Aviv. 

Sponsors of the event included: The Hedge Fund Journal, Greenbrook Communications; hedge fund managers Eminence Capital, Glenview Capital Management; Titan Advisors; and brokers Bank of America Merrill Lynch, Cantor Fitzgerald and Exane BNP Paribas; lawyers Akin Gump Strauss Hauer & Feld, and Morgan Lewis & Bockius; expert network firm Gerson Lehrman Group, and 100 Women in Finance. 

Twelve fund managers presented one short idea, eleven long stock ideas, and one long commodity idea, all of which are listed on European exchanges. Additionally, the Sohn Idea contest winner recommended a US-listed stock.

Kier Group’s aggressive accounting 

The seventh annual London event, Sohn London 2018, held on November 29th, 2018, kicked off with a short idea that proved to be remarkably prescient as the company – Kier Group – announced a rights issue within days. Vikram Kumar, who founded Kuvari Partners in 2017 after working at TT International and UBS, enumerated his concerns about Kier Group as including: the low margin nature of its contracting and construction business; aggressive accounting; misleading adjusted cashflow figures distorted by exceptional factors; stated debt understating true leverage; and overstated cash balances. He anticipates that new accounting standards, IFRS 15, will force a restatement of some historic profits, subsequent to restatements of a cash balance and some acquisition accounting.

Kumar elaborated on how “reverse factoring” of USD 185 million – which entails asking financial institutions to pay suppliers – should really be treated as debt. He suggested that, after adjustments, his view of Kier’s true net debt to EBITDA metric is many times greater than the reported figure. He interpreted the use of “Schuldschein” debt as meaning the company was struggling to access financial markets, deemed the dividend to be unsustainable, and projected 50% downside for the shares.

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