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First Derivatives catches eye of British short seller Shadowfall



First Derivatives CEO Brian Conlon

First Derivatives CEO Brian Conlon

First Derivatives CEO Brian Conlon

A well-known British short seller has taken a position in Irish company First Derivatives (FD) and issued a highly-critical note on the firm.

A letter to investors from Shadowfall Capital and Research - headed by Matthew Earl, who is dubbed the 'Dark Destroyer' in the industry - hit out at several aspects of First Derivatives (FD), which describes itself as "a leading provider of products and consulting services to some of the world's largest finance, technology and energy institutions." The company - based in Newry, Co Down - employs 2,000 worldwide.

"FD describes itself as a software company, however, in our view, FD demonstrates the characteristics of a low-margin consultancy business," said Shadowfall.

"Our research into the company leads us to believe that its historical profits have been significantly bolstered either by one-off factors that have little to do with the day-to-day operations of the business, or by capitalisation accounting treatment that has shielded costs from its P&L."

Shadowfall also questioned how much the company was spending on research. "For a purported software business, we are surprised to find that FD spends quite so little on its research and development."

The note also questioned the nature of some of the businesses that FD is investing in, claiming they included "highly speculative start-ups".

It also predicted more dilution for shareholders of First Derivatives. The company, headed by CEO Brian Conlon, declined to comment on the report.

Last February, Shadowfall became embroiled in a dispute with IQE, a Welsh technology company whose designs are used in the iPhone. Shadowfall had raised concerns about corporate governance, while IQE claimed the report was misleading.

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