Techtronic Industries Co. rebounded from a $4 billion rout caused by an obscure short-seller’s attack, after denying allegations of accounting irregularities and as analysts expressed support for the Hong Kong-listed firm.
(Bloomberg) — Techtronic Industries Co. rebounded from a $4 billion rout caused by an obscure short-seller’s attack, after denying allegations of accounting irregularities and as analysts expressed support for the Hong Kong-listed firm.
Shares of the power-tool maker rose a maximum 8.1% Friday, following the previous day’s 19% decline, the biggest since 2008. The rally came after a report from little-known Jehoshaphat Research triggered a selloff in Techtronic before trading was suspended Thursday afternoon.
In a 60-page report, Jehoshaphat alleged that Techtronic has been “inflating its profits dramatically for over a decade with manipulative accounting.” Techtronic responded by saying it “vigorously denies all the allegations” and “reserves rights to take legal actions against Jehoshaphat.”
Driving the gains was a chorus of analysts who appear to be looking beyond the short-seller report and instead touting Thursday’s selloff as an opportunity to bargain hunt. The earlier rout was a fresh reminder of the damage that short-sellers can cause after Hindenburg Research’s fraud allegations led to an unprecedented crisis at India’s Adani Group.
“We think this presents a buying opportunity, given lower valuation,” Citigroup Inc. analyst Alice Cai wrote in a report. “TTI will post 2022 results on March 1, in which management will give more color to defend against the key arguments in the report.”
Techtronic has 18 buy recommendations, with one hold and no sell. The stock is down 9.6% this year, versus a 1.6% gain for the benchmark Hang Seng Index.
Techtronic is Jehoshaphat’s biggest target in terms of market capitalization and the first in Asia. The anonymously operated firm, which claims it specializes in “forensic research on companies that are publicly traded”, has no address or phone number on its website. Its Twitter account has little more than 3,000 followers.
Market reaction to the other nine short-selling reports issued by Jehoshaphat on its website has been mixed, with five of the stocks targeted down one week after the publication, according to David Blennerhassett, an analyst who publishes on research platform Smartkarma.
Jehoshaphat’s website was inaccessible as of Friday morning.
Techtronic, which has been listed since 1990, counts US-based Home Depot Inc. as its largest client and produces equipment such as drills, lawnmowers and vacuum cleaners under brands including Milwaukee, AEG, Ryobi and Homelite. Founded by German billionaire Horst Julius Pudwill, it reported net income of $578 million for the first half of 2022, a 10% increase year-on-year.
Some analysts remain cautious.
“Given that this follows the Adani saga, just the allegations are enough to cause investor hesitation and the issue may drag on the stock price in the near term despite a modest rebound today,” said Marvin Chen, an analyst at Bloomberg Intelligence. “Focus will be on the earnings results where management will have a chance to provide greater detail.”
–With assistance from Jeanny Yu.
(Updates with analyst comments and price moves)
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