You really don’t want Viceroy Research coming after you.

They’re the guys who took down Steinhoff, a blow from which the company may never recover, and earlier this morning they released a report that spells huge trouble for Capitec.

This via Bloomberg:

The short seller who wrote a damning report about accounting irregularities at Steinhoff International Holdings NV has found a new target in Capitec Bank Holdings Ltd., South Africa’s best-performing stock over the last decade. The shares fell the most in more than 15 years before paring losses.

Viceroy Research said in a report Tuesday that Capitec, which makes unsecured loans mainly to low- and middle-income households, may be concealing losses by refinancing loans that customers were unable to repay. Capitec may have to write down its loan book by 11 billion rand ($920 million) — equivalent to 14 percent of the bank’s assets — to “more accurately represent delinquencies and risk,” the report said.

Andre du Plessis, Capitec’s chief financial officer, said the allegations are “totally unfounded” and he’s not worried about them. He said he hadn’t seen a copy of the report.

“It’s very surprising that someone writes a report who knows nothing about us,” he said in an interview. “There’s a total lack of understanding of what we do.”

Du Plessis might be reassuring the public, but it hasn’t stopped their shares from having a rollercoaster morning:

Shares of Capitec fell as much as 20 percent, the most since June 2002, before paring losses to trade 0.9 percent down at 935 rand as of 10:06 a.m. in Johannesburg. The securities declined 4.1 percent on Friday and 8 percent Monday. Before the selloff, the stock had risen about 30-fold since 2008.

A graph of the share price, taken at 10:30, shows just how severe the drop was.

You can find Bloomberg’s full story over here.

As for the Viceroy Research paper – they aren’t pulling any punches:

Their final few lines:

Given what we believe is a massive overstatement of financial assets and income, together with opaque reporting of loan cash flow and reckless lending practices, we believe Capitec is simply uninvestable and accordingly have not assigned a target price.

Capitec responded via Twitter just moments ago:

Now we wait for this one to play out…

[sources:bloomberg]&viceroy]