LPP shares lost 27%. values. The company notifies the prosecutor's office

Friday was judgment day for LPP, the owner of such brands as Reserved, Cropp and House. Hindenburg Research, a respected American investment research company, published the results of an analysis which shows that the company is still actively operating in Russia, and the sale of the business in Russia and the sale of assets were of an apparent nature.

LPP sold assets to a Chinese company

Let us recall that immediately after the outbreak of the war, the Polish company announced the suspension of operations in Russia, and then announced the sale of the business to an unnamed Chinese consortium for PLN 324 million. It was reported that the payment would be spread over the next four years.

The case was unclear from the beginning. The new owner apparently did not want to distance himself from the brand's established marketing position, so he transformed the existing Reserved stores into Re, and the Cropp brand began to operate as Cr.

LPP distanced itself from cooperation and assured that it had nothing to do with the new brands. also reserved its rights to its own trademarks. This did not prevent it from being involved in the Kremlin's propaganda activities: the brands “appeared” in videos ridiculing the violent exit of Western companies from Russia. One of them showed the interior of the Re store filled with Reserved clothes.

The truth of time or screen? It could be suspected that these were clothes that were lying in warehouses and were taken out after the Gdańsk company left Russia. However, the company itself admitted that it sent collections even after the sale was announced. She admitted this in a statement to Business Insider. She explained that under the signed contract, the buyer acquired the right to sell all goods intended for the Russian market. “The transaction therefore covered products that were in the company's warehouses and stationary stores located in Russia at the time of concluding the sales agreement, as well as those that were planned, ordered or already produced for the Russian market,” the press office wrote.

Hindenburg Research's findings on LPP

It could be expected that when the clothes covered by the contract are sold out, LPP will close the Russian chapter once and for all. However, American analysts from Hindenburg Research determined that this did not happen and the Polish brand still sells its products in Russia.

These sensational reports were enough for LPP shares to lose 27%. values. The company immediately issued a statement in which it argued that it had become a victim of manipulation.

“The report prepared by Hindenburg Research is part of an organized disinformation attack that has been prepared for 5 months and is aimed at reducing the share price of the LPP Group,” the press office wrote in a statement sent to Interia.

“From what we have established, we are not the first company that has become the object of interest of intelligence agencies. Earlier, Hindenburg targeted Adani in a similar practice. At the same time, we know that the intelligence agency operates on behalf of third parties,” the company argues.

LPP notifies the prosecutor's office

The company believes that the information contained in the report of the American company is false and manipulated. In one of several statements issued today, LPP informed about submitting a notification to the prosecutor's office on suspicion of committing a crime by Hindenburg Research. We read in it:

“The company firmly and completely denies and denies the information contained in the Hindeburg Research material. In particular, the company informs that:
1. does not conduct commercial activities on the territory of the Russian Federation;
2. the transaction of sale of the Russian company was not fictitious and did not involve accounting or accounting manipulations;
3. as of 2022, it does not control the Russian company OOO Re Trading and its activities;
4. entities under the names Fashion Group Textile and Asia Fashion Import Export are not controlled in any way by LPP SA;
5. the entity called Far East Services is not controlled in any way by LPP SA;
6. the management board of LPP SA did not finance in any way the transaction of selling shares or running a business in Russia after its sale, including through loans secured by a pledge on LPP SA shares;
7. did not ship goods to Russia through the territory of Kazakhstan;
8. did not change the audit firm auditing the financial statements of the company and its group in connection with the transaction of sale of the Russian company or related issues (the change resulted from the expiry of the deadline for which the audit firm was selected).”

The market doesn't know how to treat this information

Eryk Szmyd, an XTB analyst, commented on LPP's stock market problems

– LPP shares plummeted after the disclosure of the Hindenburg Research report, which is undoubtedly a red flag for investors. First of all, the market does not yet know how to realistically estimate the damage that this report may bring in the future. This uncertainty results in panic. The scenario of regulatory investigations, changes in ESG ratings of lenders, financial penalties or problems with the Grant Thornton audit is just the tip of the mountain of fear. The main concern is a potential boycott of consumers on whom LPP's expansion depends, he noted.

He added that the company has approximately 5 percent. market share in Ukraine, where sales may decline. In an extremely negative scenario, the price reduction could bring the price down to the levels of autumn 2022, i.e. around PLN 7,500.

– In recent months, investors have been paying attention to the company's dynamic growth, achieved despite its exit from the Russian market. Meanwhile, the report suggests that the company never decisively left Russia, which raises questions about the real dynamics of increasing share in important markets and the further continuation of this trend, Szmyd wonders.

Does today's stock market panic herald a decline in real clothing sales? Not necessarily.

– If the company does not encounter any serious problems in the coming months and shows further business growth, the downward reaction may turn into a gradual improvement in sentiment and euphoria, during which the market will strive to erase the downward gap. There is also a chance that the Hindenburg fund will relatively quickly close the “short”, which has not yet appeared in the KNF's short positions. The lack of a disclosed position may indicate that he took a relatively small position, less than 0.5 percent; without having to reveal himself – says the XTB analyst.