Renergen CEO defends paying market analysts for research

Renergen CEO Stefano Marani said it is common practice for smaller JSE-listed companies to use paid market researchers. 

Renergen has recently faced criticism for using paid market researchers and analysts to report on the company.

Some analysts have also come under fire for allegedly not disclosing this in news articles and social media posts about Renergen.

In a SENS announcement released on Wednesday, 17 October, Marani defended Renergen’s use of paid market analysts, saying it is “common market practice”. 

“Most major broker research covering the JSE typically does not include stocks with a small market capitalisation,” he said.

“These research reports contain disclaimers that provide the relevant disclosure related to the fact that they receive compensation from the company.”

In an interview with BusinessDay TV, Marani doubled down on these comments, saying it is a well-defined process.

“A stockbroker only really has a certain amount of bandwidth, and they have to have the highest turnover to generate sufficient fees,” he explained. 

“The highest turnover only occurs in the most liquid stocks. So, by and large, brokers will pay out of their pockets for their own independent research on the top 40 companies.”

“It’s really only the top 40 stocks on the JSE plus a few others that will have truly unpaid-for research.”

He said the other 300 companies on the JSE all use paid-for research, which the rules allow for.

However, it is up to the research analyst to, in their publications, stipulate through a disclaimer that it’s paid-for research.

In addition, Marani said Renergen does not use these analysts’ findings as “gospel”.

“The thing about using a paid-for research report is that when you’ve got a niche commodity like ours, it serves as a useful tool to bring in a professional who applies their minds and comes up with their own valuation model,” he said.

“Are we saying that their model is correct or incorrect? No, we’re not doing that. We’re providing them with publicly available data, showing them in the right direction, and they’ve got to come up with their own model.”

However, Marani’s clarification was insufficient for some commentators and retail investors.

Dave Hazelwood, an active commentator on Twitter, said, “Renergen CEO Marani admits that SmallTalkDaily (Anthony Clark) and Blue Gem (Keith McLachlan) were paid for research and that this was disclosed in the research reports.” 

“My issue is with social media comments and news articles where no such disclosures were made (many people were not aware).”

Keith McLachlan

Daily Investor reached out to Keith McLachlan from Blue Gem Research about these claims. McLachlan has written articles for Moneyweb and published research on Renergen.

He told Daily Investor that he built Blue Gem Research to offer some companies on the JSE a commissioned research service. 

“Because of the collapse of the local sell-side research industry, there are lots of good companies that lack analyst coverage,” he explained.

“Even when these companies get coverage, sell-side analysts typically only send their notes to their own clients (i.e. institutions – you see, all research is paid for, it just depends on who is paying).”

“Thus, I think that a service that charges the company directly and then offers the research to the public for free can add value to our market, assuming the research is of high quality (which I have certainly tried to do, but I will let the market decide that).”

He explained that, legally, this means this coverage is not independent, which is disclosed in every single report’s disclaimer and on Blue Gem’s website.

While he liaises closely with the management of each company to understand their respective companies, these management teams do not have a say in what research is published, what thoughts or opinions it contains, nor any final valuation. 

Blue Gem also charges the companies upfront for the coverage – which lasts a year. This further ensures that payment cannot be withheld for adverse opinions or conflicts resulting from coverage.

“With regards to any other comment or article I may have been quoted in or written anywhere in any other media source, this is not commissioned nor anything related to Blue Gem,” he said. 

“These are done in my own capacity, and I do attempt to disclose all relevant disclaimers where and when I can control how they are published. The nature of media is that I do not always control the latter.”

Regarding his findings on Renergen, Mclachlan said the company’s critics are attacking its external shareholders and history rather than focusing on the resources behind the company.

“Its external shareholders are, well, external, and its history is a sunk cost,” he said.

He referenced a report conducted by Sproule, an independent global gas specialist who audited and signed off on Renergen’s formal gas reserves. 

According to Mclachlan, this report is the underlying and best investment case for Renergen and something he has focused on and built his model around when researching the company.

Daily Investor also reached out to Anthony Clarke of Smalltalkdaily Research but did not receive a response by the time of publication.