Short seller J Capital fires fresh Nearmap salvo

Beijing-based J Capital has accused the aerial map maker of avoiding answering key questions about its US business.

Nearmap is the subject of a second salvo from J Capital.

Beijing-based activist short seller J Capital has fired a fresh attack at Nearmap, declaring the aerial map maker has avoided answering key questions about its US business.

Nearmap was the ASX’s best performing stock on Monday, after it responded to a report from J Capital that alleged its US business was severely underperforming, and that its technology advantage had been eroded by competitor Eagleview. The short seller’s attack last week sent Nearmap’s shares down by 10 per cent in one hour, but on Monday it was up by 19 per cent, sending short sellers underwater.

“Nearmap did not dispute that the Eagleview camera system is twice as efficient,” J Capital said in a fresh report on Tuesday. ”No attempt was made to demonstrate market-share improvement in the US. Then company obfuscated pricing strategy with obtuse language that does not refute any of our statements.

“We continue to believe that Nearmap cannot compete in North America. We now also believe that the company is losing share in Australia and New Zealand.”

In its second report J Capital said Nearmap investors should “brace for churn and customer downsizing”.

“Interviews we conducted in the last two days with former salespeople confirm that Nearmap sales staff push clients to upgrade at the end of each reporting period to push up sales numbers,” it said.

“Former sales told us that they have to stay in the office for the last week of the period to pound the phones and get the upgrades to meet targets at the end of the period. Two former salespeople told us that clients subsequently reduced their payments once they realised they had purchased more data than they needed.”

Nearmap turned up 2.7 per cent to a fresh three-month high at $2.64 after falling 2 per cent in early trade.

Nearmap chief executive Rob Newman

Nearmap on Monday rejected J Capital’s first report as inaccurate and unsubstantiated, pointing to its half-year results showing US growth of 18 per cent year on year.

Short bets taken after the report was released lost at least 13 per cent and potentially as much as 24 per cent, in what analysts described as a rebuke to scepticism surrounding Nearmap’s US performance. About 5.5 per cent of the company was shorted.

J Capital said in a report last week Nearmap had used “accounting tricks” to misrepresent the success of its US business, claims company boss Rob Newman, said showed a deep misunderstanding of its business and the mapping industry.

“We’ve got such a good business, that to have a short attack seemed odd. And then as we read through the paper, realised that it was on the basis of a complete misunderstanding of how the business works and what we deliver to our customers,” Dr Newman said. “Short selling is part of the industry, it’s accepted practice, but the short attack in this particular case completely missed how well our business is performing.

“To contrast the quality of the report with the actuality of our results, it’s clear that it was opportunistic.”

Dr Newman said that in the face of a spate of recent short ­attacks against ASX-listed companies, the tide of sentiment was turning against short sellers.