Quintis Ltd at the Mercy of Short Sellers

Quintis Ltd [ASX:QIN], formally known as TFS Corporation Ltd, manufactures, sells and distributes sandalwood products.

In a 27 February announcement, QIN said that growing demand for sandalwood had led to a transformational year for the company.

QIN managing director Frank Wilson said:

This is a transformational year for TFS as we sell commercial quantities of Indian sandalwood oil and wood from our first large scale commercial harvest. The benefits of that transformation are now starting to be realised by TFS.

The company has grabbed the attention of many private investors. But it’s not the kind of attention they were looking for.

What happened to the Quintis share price?

Hedge funds and activist investors are calling QIN a Ponzi scheme. As reported by the Australian Financial Review:

West Australian Sandalwood producer TFS Corporation has vigorously defended its reputation against a US hedge fund which has portrayed the company as a Ponzi scheme in a blistering 40-page take-down.

TFS chief financial officer Alastair Stevens described the report from Glaucus Research Group’s Soren Aandahl as one-sided and highly selective, highlighting a series of factual errors in the report that could have been cleared up if Glaucus chose to engage the company at any point in the process.

The stock has fallen 12.60%, to $1.145 a share, and could dip even further if investors continue to short the stock.

Is Quintis trading at bargain prices?

In the first half of FY17, QIN generated revenues of $152 million, down 4.6%. Net profit after tax was also down 58%, to $28 million. Cash holdings fell $17.2 million, to $89.8 million, and long-term borrowing increased by almost $100 million, to $541 million.

Not great figures to start the financial year.

Coupled with the possibility of more selling, QIN might be an investment best monitored from afar. The company has said that they expected FY17 earnings before interest, tax, depreciation and amortisation to be 25% higher than FY16 figures.

Yet, their expectations rest upon the assumption of further demand for sandalwood products — an assumption bashed by the short sellers.

Regards,

Härje Ronngard,

Junior Analyst, Markets & Money

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Harje Ronngard is a Junior Analyst at Markets and Money. With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation. It’s not good enough to be right on average when it comes to investing. The market is volatile and it only takes one bad day to ruin your portfolio. You don’t want to end up like the six foot man that drowned in the river that was five foot deep on average. It’s why Harje is constantly reminding investors of their downside risk here at Markets and Money. He does so by simply asking just two questions.  What is it worth? And how much does it cost? These two questions alone open up a world of investment opportunities which Harje shares with Markets and Money readers. Right now Harje is focused on managing research and investments over at the Legacy Portfolio. An investment publication designed to significantly grow investor’s wealth over time with deeply undervalued businesses. Harje also contributes his insights in Total Income, headed by income specialist Matt Hibbard. Harje loves cash-rich businesses, so he feels right at home amongst Matt’s high yielding income plays.


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