Israeli business systems IT company Amdocs Ltd. (NYSE: DOX) fell sharply following a negative report by Spruce Point Capital, which focuses on short-selling. Amdocs's share price was down 8.95% to $55.06 on the NYSE yesterday, giving a market cap of $7.685 billion. Spruce sees a 25-50% downside risk on the share price, which it predicts will fall to $30-45 in the medium term. Spruce gives a "Strong Sell" recommendation but gives full disclosure by adding that "Spruce Point Capital has a short position in Amdocs Limited (DOX) and stands to benefit if its share price falls." In the past, Spruce has issued a negative report about Israeli kitchen countertop manufacturer Caesarstone Bat Yam Ltd. (Nasdaq: CSTE), which hit the share price hard.
Spruce described Amdocs, which was founded in Israel and is headquartered in the US as "a cryptic entity based in the tax-dodge haven of Guernsey that provides revenue management, BPO and IT services primarily to telecoms."
Spruce justifies its harsh "Strong Sell" report by saying that it is concealing a lack of organic growth, " We believe that DOX has engineered superficial top and bottom-line growth alongside unusually stable margins through opaque M&A, aggressive percentage-of-completion accounting, software cost capitalization, and repeated one-off net tax benefits."
Spruce adds that business with major companies like AT&T and others is falling saying, "Due to Amdocs's major exposure to AT&T and the stagnant telco industry, we see consistent instability in Amdocs's profit margins and rise in non-GAAP profit, concealing the fact that it is struggling to produce cash as seen in opaque factoring deals and loans."
Spruce is also concerned at the very low number of Amdocs's shares which are held by its management and board of directors. Spruce says, "With insider ownership at an all-time low, evidence that management is milking DOX’s cash through aggressive option comp schemes, and Board members tied to allegations of option back-dating and software cost capitalization, we believe that shareholders should keep a vigilant eye on management’s accounting practices and compensation decisions."
Published by Globes, Israel business news - en.globes.co.il - on January 24, 2019
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