Stock analysts reject short sellers’ attack on GFL, but investors sell their stocks amid allegations


Analysts who cover Toronto-based waste management company GFL Environmental Inc. mostly reject damning claims made by a short seller targeting the company, but based on the share price, it’s clear that investors are not yet fully convinced.New York-based short-selling firm Spruce Point attacked the company on Tuesday in a 107-page report, accusing the company of using questionable accounting methods to hide the debt burden and blaming some of company executives from being involved in suspicious businesses. the past.

The short seller, who has a vested interest in driving down the price of the company’s stock, claims that the company’s stock is in fact “worthless.”

Prior to the report, just about all of the investment brokerage analysts who cover the company had a ‘buy’ rating on the stock, meaning they think the stock price is about to drop. ‘increase significantly next year.

None of those analysts changed their headline rating in the days after the report was released, and many dismiss the allegations.

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Jefferies analyst Hamzah Mazari said the short seller has “a lack of industry knowledge” about waste management activities and said debt, income and capital expenditures of the company were quite reasonable within the standards of its peers.

The company has grown aggressively through acquisitions, recently gobbling up US waste company WCA for US $ 1.2 billion last week.

GFL, which operates waste disposal fleets in eight provinces and 23 US states, has made more than 100 acquisitions of other companies since its inception in 2007, and Spruce Point says the deals put the company on the back burner in debt.

Mazari rejects this notion.

“Maybe it’s fair to say that the company had to pay to build their American platform, but to say it’s zero because of [that] loses the forest in the trees, ”Mazari said.

He also says Spruce Point has a “lukewarm” record with previous short calls, which is why the current liquidation could represent a buying opportunity.

“The stock market reaction to a name that does not have much public history did not surprise us and is not of concern. ”

Although around 73 million shares are available on the public markets, most of the company is owned by private equity groups and pension funds, including the Teachers’ Pension Plan. from Ontario.

Mazari has a target price of $ 36 for the company’s Canadian shares, well above the $ 24 level at which they changed hands on the TSX on Thursday.

The company went public in March at just over $ 22 a share on the TSX in one of the largest IPOs in Canadian history, raising more than $ 2 billion.

Ahead of the short seller’s report, GFL shares closed at just over $ 28 a share on Monday. They then lost nine percent of their value on Tuesday and another five percent on Wednesday. They spent much of Thursday sawing.

The liquidation of the title has already caught the attention of half a dozen law firms specializing in investor suits.

TD Bank analyst Tim James had a “hold” rating before the report, meaning he thinks the company is neither a “buy” nor a “sell”, but he doesn’t hasn’t changed its rating or its target price of $ 32 a share since the report surfaced.

James said he was not in a position to “validate or refute” all of Spruce Point’s allegations, he is satisfied that they do not represent “significant risks to the value of the company or its ability to generate shareholder value ”.

“We believe that GFL is entering a period over the next 6-18 months in which its financial results will begin to validate past management actions and render the report’s most sensationalist claims irrelevant,” he said. he declares.


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