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In an email sent to clients on Friday, noted Tesla (NASDAQ:TSLA) bear and GLJ Research analyst Gordon Johnson said the firm is in 100% agreement with Muddy Waters’ short report on Hannon Armstrong (NYSE:HASI).
Investment research firm Muddy Waters released a report earlier this week stating that Hannon’s “accounting is so complex and misleading that its financial statements are effectively meaningless.”
Hannon released a lengthy rebuttal on Wednesday, telling investors that while they “will not engage in a tit for tat rebuttal of every falsehood in the report, it is important to set the record straight.”
Several analysts also defended Hannon in their own notes shortly after the report was released. However, GLJ Research stated it is in agreement with Muddy Waters after a phone between the two discussing the claims.
“In 2021, HASI recorded $362.7M in non-cash HLBV income, or 2.3x its reported distributable earnings of $158.7M (these distributable earnings are what the Street uses to value HASI). Instead, if HASI reversed out the $362.7M in non-cash upfront income it recognized in 2021 (and will FULLY REVERSE OUT OVER 20yrs), which, in our view, is a REAL bird’s eye view into the actual earnings power of its business, it would have reported NEGAGTIVE [sic] distributable income,” wrote Johnson.
He added that HASI’s Equity Method Investments (EMIs) are “losing massive amounts of money,” which, while not illegal, is, in their view, “deeply deceptive accounting.”
In further claims, Johnson states HASI uses an accounting loophole, inflates earnings by applying unreasonably low discount rates that underpin its gains on securitizations, and “inflates earnings by booking non-cash PIK interest income from at least one EMI to which it lends.”
“As we have stressed over, and over, and over again, RUN + NOVA + SPWR + HASI are cash-incinerating subprime lending ‘science experiments’, that don’t generate money (and likely NEVER will in our view), and involve VERY complex accounting,” argued the analyst.
Despite dipping earlier in the session, HASI shares are up 0.1% on Friday.
