Update re. Prescience Point Capital Report
Short-seller report makes claims of revenue inflation
Last week, Prescience Point Capital published a report on Enphase that
laid out several dramatic claims of accounting fraud and insider
malpractice of their fiduciary duty. Specifically, the report claims that
over $200 million, or 40% of Enphase’s reported FY’19 revenue, is
fabricated as are many of the cost reductions that have led to significant
margin expansion. As several insiders, including CFO Eric Branderiz,
sold shares in May and June, T.J. Rodgers, one of the largest individual
shareholders, donated half his share ownership to his charitable trust,
which subsequently liquidated the shares. While there is no direct
evidence of insiders selling ahead of bad news, Prescience Point Capital
has tied the sales to the publication on its report, which effectively
amounts to illegal insider trading.
Claims lack evidence
These are extraordinary accusations, that, if correct, will land the
company and its officers in dire legal trouble. As a shareholder, we have
taken the Prescience Point Capital report seriously and have to the best of
our ability tried to validate the various claims. Investing is like a mosaic
where you put the different pieces together from different sides to see the
full picture.
We can never assert 100% certainty of dueling assertions like these, but
after further research and direct discussions with the company’s finance
and account team about each of the points, we conclude that most, if not
all, claims in the report are either directly false or have been carefully
curated with a set of assumptions and innuendos to present a significantly
misleading picture of fraudulent behavior where there isn’t any.
Investment thesis remain intact
Roughly 40% of all new energy that came online in 2019 was from solar,
and the space is continuing to accelerate its growth and importance to
every country in the world. The micro-inverter market is expected to
grow at almost 20% over the next 5 years, and Enphase will likely grow
well ahead of that pace.
With a $5.7 billion market cap, Enphase is now trading at rough 8.5x
expected 2020 revenue and 43x expected 2020 earnings. As we explain
in this note, the margin expansion achieved are real and will likely
continue over the next several years with 2021 earnings expected to grow
by roughly 40%.
Despite the claims outlined by Prescience Point Capital, Enphase remains
one of the most important companies in the solar space and our
investment thesis and 12-month target price of $65/share remain intact.
Download the entire report here Enphase Update
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