Time to call "BS" on Q3 Earnings - Atos Explanation

Explanation behind Atos target price suspension and liquidation alert for Atos shares on October 14

Atos' earnings results for the third quarter of 2021 will be announced tomorrow, October 20 after the Euronext Paris market closes. Last Thursday, October 14, I was extremely bullish on Atos and excited to see the results of this reporting period. In order for you to quantify how bullish I was, my entire investing portfolio was composed of Atos calls expiring on June 2022 at a strike of 52Eur. 

However, on that same day, I found what I would describe as "a red flag" doing research on Atos. Because of what i found I rushed to publish a new article on my website titled "URGENT UPDATE - LIQUIDATE ALL ATOS SE SHARES HOLDINGS" in which I explained finding something concerning about Atos. In that article I also halted the 3-Year target price I had for Atos and urgently recommended to liquidate any holdings of equity in the company. I then shared the article on twitter and stated that I was going to explain the reasoning more in detail in another report coming next. By that moment my priority was to share the "liquidate Atos" message as much and as fast as possible. I also sold all the options I had on Atos that same day. As a result, I am now 100% cash. I was all in on Atos through options. 

I was more than convinced on holding those options through earnings, so in case you wonder if this move is "me panicking before earnings" because I am too exposed, it´s not. In fact, I have already been all in on Atos through options and margin on shares. I got wiped out two times on October 2020 and in April 2021, when the stock went 20%. In the case of April, 20% down on a single day. Both of those times I knew the risk I was taking and I took it because it was an amazing risk/reward opportunity for me at the moment. Fear is clearly not stopping me this time. I was planning and excited about holding my stake through earnings, since its then when the real money is made, but I am not st'pid. Last thursday I found a red flag that made that risk/reward ratio way unatractive for any investor. 

There are two main factors that lead me to conclude there is a red flag about Atos Q3 earnings. 

The first one is the amount of news that the company is releasing in advance of the earnings report. I have been covering this company for more than a year now and I had never thought Atos was manipulating their stockprice with the release of news. In the past, I refused to think that way because I wanted to give the company the benefit of the doubt since I had no proof of any kind of manipulation. However, I have to admit that possibility was resonating in my head for a long time. I remember the stock going up 2% shortly before April 1, when the stock plummeted 20%, because of the news that Atos was developing a satelite tracking platform. Even after losing almost all of my leveraged portfolio with that 20% decline, I strongly believed in the good faith of the company. I welcomed the news and even now I think all of the Atos work in the satelite industry is amazing. At the time I was so focused on not being a "bad loser" that I refused to argue about the "particular" timing of the release of those news by the company. I strongly believed there were no manipulative intentions by the company with the release of news until last Thursday. 

On that day I was doing a daily update on research for the company and found that the company had ,launched that same day, a new mobile application for the COP 26. COP 26 will take place this year from October 31 to November 12. Atos released a news article about the release on their website. This was the title: 

"Atos launches Terra² mobile app to provide the most comprehensive satellite images of Earth, empowering policy makers in their race to Net Zero"

Reading through that document I saw that the app was available to download on the App store and on Android. I was extremely happy about thee news and they were to me completely unexpected. An app was also a project from Atos I could see with my own eyes. After researching the company for more than 1000 hours and after tracking down in a mind map all of Atos' operations, this was the first time I could see one of their projects. This is a characteristic of Atos' operations. Their work is most of the time IT infrastructure and tends to remain unnoticed. There is no way someone could notice it is Atos' work unless it is comunicated by the company or one of its clients. Anyway, I was happy to finally hae that opportunity. 

I downloaded the app on my phone and explored it. 

It is supposed to be used to track information about the environment and be used during the COP 26.

The App wasn´t bad and it was completely functional. However, it was clear that it was not as polished as the Facebook, Youtube or Twitter app. There were tiny details that evidenced that like the edge of some icons or the transition effects when opening a tab. Although I would have liked the app to be perfect, I understood that is difficult for an app that has just been launched. To be fair, it was OK and overall very functional. I concluded the app could perfectly accomplished what it was designed and supposed to do. 

Before leaving and going to work, I realized there was a section with the title "About Atos" under the settings tab. I quickly tapped on it and there I found the red flag. 

A text description about Atos can be seen on this last picture. It has been placed there by Atos itself, who developed the App in the first place. The las line states that Atos is "listed on the CAC40 Paris stock index" when talking about the reputation of the company. The CAC40 is like the French DOW, SP500 or NASDAQ index. 

That is by now a small detail and for almost everyone nothing would be interesting there. However, if you have followed or covered the company for some time, you would probably remember that Atos was excluded from the CAC40 index effective September 17 of the current year (2021), after being in that index since March 2017. 

Many would categorize this as a small insignificant mistake of this new app. To me however, this "mistake" unleashes many doubts. 

First off, Atos clearly had no intention to include that in the description. I imagine that most probably the developing team of the App, who is working for Atos in India, was in charge of creating this app. They probably had a checklist of things the app needed to have, in which a description of Atos as a company was included. That programmer probably just copied an old description Atos had on a website by the time it actually was included in the CAC40. The programmer was not aware about copying old information and this is how that statement reaches us. 

The app having old information is an understandable mistake. However, what concerns me is what this could tells us about the quality control at Atos. If this app is supposed to be used as early as the 31th of October, how could it had not been at least reviewed by any project manager at Atos. I really doubt this App is finished and ready to use. Anyone at Atos who had the power to release the app to the public knows Atos is no longer on the CAC40. It was such a big deal last month. This app just hasn´t been checked or reviewed by any Atos team in France. If so, why was this app released?

Initially, there is no real need for this app to be released to anyone who was not taking part at the COP 26 Summit. Moreover, that app only needs to be operative in 10 days. Atos decition to launch it in advance is very strange. Even more suspicious if they released it in a faulty condition. 

You may have a different interpretation of this events. Personally, my take is that the release of this app was rushed. Most probably, the developing team had instructions to finish it as soon as possible, sent it to the French, who subsecuently rushed to release it. And that´s how that mistake ended in the "final version"

That crazy interpretation was the first thing that crossed my mind when I saw that statement on the app. It is a completely speculative interpretation that tries to explain these events and I can´t prove it at all. 

The main reason why I panicked so much with this simple mistake was that I had had the feeling that the weeks prior Q3 earnings there were suddenly a ton of news about Atos. Just like it had happened on April 2021 or October 2020, but way stronger. A month ago there were rumors of Atos being bought. First the "supposed buyer" was private equity like KKR or Cinven. A week later it was Thales, Capgemini, Orange and Sopra Steria. 

I really believed a buy-out was possible because of how low the valuation of Atos is. Now I have 0 doubt about those rumors being fake. NIn the last months the "rumors of an acquisition" have become the new reality of every French company after it happened to Atos. Now GSK and Eutlestat are, according to rumors, going to be bought by "someone". Knowing that presidential elections will take place in France early next year, I wonder how many managers and insiders are taking advantage of the higher than usual stock prices, fueled by these rumours, to sell their share holdings. It should have been the perfect moment for them to reduce exposure if their friends in the current administration don´t get re-elected next year. 

In the case of Atos, their biggest client is the French government. Projects like the "QR Code" for the Vaccination certificate and many more have been won by Atos. It is also interesting the fact that "Édouard Philippe" a politician who is running on Macron´s party for the re-election campaign of next year happens to be on Atos´ board of directors. I every single one of the members of that board is more than scared of the chance that Macron´s party could not win the upcoming elections. If they want to reduce their exposure selling their Atos shares and equity convertible bonuses, they better bet these Q3 earnings results are great enough to drive Atos' stock price up, before the election's uncertainty hits the French stock market. 

Othrwise, with bad results the narrative for Atos stock in the markets will be catastrophic. Every analyst out there thinks Atos is already dead and losing the revenue stream from those government contracts, in case the administration changes, would be only the nail in Atos' coffin. 

If the management or any big shareholder with insider info expected a bad perception of the market from Atos' Q3 results, wouldn´t it be perfect, to dump their shares, that out of nowhere some rumours of a buy-out happened to inflate the stock price? The same applies also for that perfectly timed release of the "Terra" app. It was supposed to be released on the 31st of October, but luckily for insiders, it happened to be released right before earnings. Insiders should apparently be very happy that the app release caught some analysts off-guard and drove the price of the stock up to 1.6% intraday. 

Since I can´t prove what was happening behind the scenes, that whole situation is just hypothetical and is born out of pure speculation. However, that could be the perfect timing of the news of the "Terra" app, in case the Q3 earnings coming up tomorrow turn out to be worse than expected. This whole situation reminded me so much of April 1st and the timing of the satelite tracking platform, that I decided to dig in deeper. 

I made three different timelines. All of them start on January 1st of 2020 and have the dates in which Atos released and is expected to release quarterly earnings results marked on them. Then I  compiled on one of the timelines all the news shared by the company during that period. On the second timeline I compiled all press releases the company issued during the same period. Finally, on the third timeline I compiled the Twitter and Linkedin posts per month from Atos' accounts. Here are the results: 

It took me a really long time to compile that data manually, but I think it clearly shows how there is more communication activity from part of the company right before earnings. 

Clearly, this is no remote proof that the Q3 results that will be released tomorrow will be bad. To me however, these facts suggest there is a high probability of the management timing the release of news in the company with intentions to manipulate the price action of Atos' shares. If that was the case, and I now frimly believe it is, the management would be manipulating the stock with expectations of bad results in this upcoming reporting quarter. That is the reason why I sold my entire position on Atos. 

Have a Nice Evening. Time will tell, as always. 

UNFLAGGED RESEARCH 🚩

20.10.2021 ; 2:14 AM (CEST)