Henry Morgan – 3 Years On
A bit over three years ago I began researching a company called Henry Morgan (ASX:HML), its sister company Benjamin Hornigold (ASX:BHD) and their investment manager, John Bridgeman (NSX:JBL). During my research I posted on this blog, writing that “something doesn’t add up and I remain gravely concerned about the way that Henry Morgan and co are creating value for their shareholders”. I thought that something was “fucking rotten”. Later, these companies sued my web host to get my identity, and the story was subsequently written up by the AFR. I wrote a brief post about the experience here.
Last year, Gary Miller, Sulieman Ravell and Michael Glennon gathered enough shareholder votes to oust management at one of the funds, Benjamin Hornigold, and that company recently returned to trade after two(?) years in suspension. I assisted these men in the Takeovers Panel application that led to the recovery of several million dollars in shareholder funds (there’s a whole other story about Gary, Sulieman, and Michael’s work there). Henry Morgan stayed in suspension so long that it has now been delisted from the ASX, and John Bridgeman is in a curious situation at the moment (and suing its exchange operator, the NSX). That chapter of my life was winding down and the AFR recently covered the pyrrhic victory of this incredibly protracted process.
What’s not widely known is that three years ago – July 2017 – I lodged a Freedom of Information (FOI) request with ASIC. I was hoping to obtain ASIC’s Statement of Concerns and Statement of Reasons behind its decision to block Henry Morgan from issuing options. Three years later, after numerous objections from pirate lawyers, the FOI request travelled to the OAIC (the independent arbiter of FOI requests), which this week approved the release of the documents I had requested.
I have read these documents and they demonstrate that ASIC shared similar concerns. ASIC felt that Henry Morgan produced materially misleading statements, and ASIC was concerned about the valuation methodology for the unlisted assets. There is more information in these documents that I did not have access to in the public accounts, but the broad concerns map 1:1 with what I wrote in my reports. The screenshots below come from both the Statement of Concerns and the Statement of Reasons, and may have different meanings or levels of certainty under the law – nonetheless, they are illuminating:
Huge increase in valuation between late 2016 and January 2017:
ASIC was concerned that the valuations may not have a reasonable basis. Company documents suggest that announcements of valuation increases were not reflected in the company’s own books and records:
ASIC is concerned about the forecast profits of the JBFG business and has formed the initial view that the monthly NTA calculations released to the ASX are misleading:
The information ASIC has received does not support the conclusion that the NTA calculations have a reasonable basis.
Said they’d roll out more stores but didn’t have evidence to back it up.
This was known already but is too good not to include again – announcing $96m in revenue when it didn’t have anywhere close to that:
All I can say is that I called it like I saw it, and it looks like ASIC saw it much the same way. I feel that my concerns were substantially vindicated. Yet on the other hand, ASIC spotted these issues three years ago(!!) and took no substantive action – to say nothing of all HML/BHD/JBLs activity since. Enforcement, where art thou?
When I read the issues that ASIC raised, I think about this chart:
There is more to tell, about why ASIC took no action, and the hard work of Messrs Miller, Ravell, Glennon – but those stories will have to wait for another time.
I have no financial interest in any company or individual mentioned. I would like to thank the Australian Securities and Investment Commission for releasing the FOI documents, and for electing not to charge for the release of the information. The FOI documents can be requested via a link on this page.