There will be another article appearing in The Australian newspaper about Magnis Energy Technologies in coming days, written by ex-property journalist David R Ross. Ross has taken up the mantle from business editor Kylar Loussikian, who between them have now written over 10 negative articles on Magnis in the last three months. It is clickbait journalism, measured by ‘views’ not quality. Now they are coming after ShareCafe and our research business Corporate Connect, to question the commercial arrangement we have in place with Magnis and to insinuate we have compromised our principles for dollars.
ShareCafe would have to be the only investor platform managed by investment professionals. When we put together our research business Corporate Connect it was because we saw a gap in the market for intelligent investment content. We understood that if the company paid for the research, we could provide information to a wide audience at no possible cost. Over the years we have witnessed many market cycles and have seen first-hand the financial devastation suffered by unsophisticated investors at the hands of unprincipled entrepreneurs, financial product issuers and listed companies. Given our investment backgrounds we recognised that quality research should play a more significant role in an investor’s decision-making process.
In establishing Corporate Connect, we put together a team of analysts with decades of investment bank experience. Against this, over the last ten years or so the industry has witnessed a significant ‘brain drain’ of equity analyst talent out of investment banks. This has been particularly the case in the small-cap end of the market, where small-cap fund managers have generated significant outperformance and fund flow despite the highly inefficient nature of this market. Further, significant changes to international regulation and compliance have made it very difficult for small- and micro-cap companies to attract research coverage from investment banks. A fact even the ASX recognises with its broker research program where it pays analysts to research companies from a list it produces each year.
Company-sponsored research has been a global trend for many years now and for institutions it serves a purpose and is widely accepted. This is evidenced by the significant institutional downloads Corporate Connect research receives on a monthly basis. And it’s a global trend that is only getting bigger with about 80% of French companies, for example, with a market value below 500 million euros paying for financial research last year. Analysts, like fund managers, can attract institutional following post building successful track records that can take decades to establish. Our analysts regularly meet with fund managers to discuss our research.
Of course, critics of company-sponsored research suggest it’s fraught with potential conflicts of interest. We’d suggest this will be The Australian newspaper’s line of attack this week with their Magnis article. However, at all times Corporate Connect has disclosed the nature of its contractual relationship with Magnis, as is the case with every company it covers. This is in comparison to broker research where an investor has no idea of the fees being generated behind a research note; particularly if a corporate transaction is in play. Either way you look at it, a company always pays for research. In the case of Magnis we have been remunerated through quarterly cash payments. There have been no stock or options issued.
All good research outlines the risks as well as the rewards and we are careful to outline all risks in our research reports. Our reports include a price target – not a recommendation – with the price target a function of those risks, weighted according to execution and milestones being achieved. Looking forward the price target is adjusted, either way, according to those execution milestones. We tell the company’s story; it is up to them to execute on their vision. All reports are forwarded back to the company to correct any errors of fact not opinion.
When we approached Magnis in July 2021, it was driven by our research process on Novonix. Any good analyst will always look at the competitive landscape, and our research led us to IM3NY, a lithium-ion battery plant under construction in New York. The battery factory was owned by Magnis Energy via a joint venture. If you read our Novonix research it tells a story, because good analysts always look for the story. The story was based on the fact the United States did not own any components of the electric vehicle battery chain, it was 100% imported via China. We believed that Novonix represented a unique opportunity to own part of an enormous new industry at a time of significant government funding and support. Magnis was an extension of that clean energy opportunity and was the reason we reached out to the company. It was research-led, analyst-led. That’s invariably where great research finds further opportunity.
When we bought ShareCafe a couple of years ago the first thing we did was expose IPO Wealth/Mayfair101 after resisting the temptation to accept their marketing dollars. Our guiding belief was that with our decades of investment experience comes an inherent responsibility to protect investors to the best of our ability. Those principles are consistent with our research work. We might not always be correct in our analysis, but we stand by our work. In no way is it “cash for comment”.
For whatever reason, Magnis Energy Technologies has been a constant target of The Australian newspaper. We now anticipate that our research relationship with the company will be bought into question in the coming days. And if past articles are anything to go by, we expect this one to be biased and full of innuendo.
Like good research we have presented the facts. We will let our readers judge us on that.
