Its imagotag: After the attack on Gotham City Research, SES-imagotag collapses on the stock market

(BFM Bourse) – The specialist in electronic labels responded to the short seller’s vitriolic research note, judging that it contained gross inaccuracies. On the Paris Stock Exchange, the action, which was suspended Thursday when the Gotham City note was published, fell by half.

Not surprisingly, the SES-imagotag share took the shock badly. The title of the specialist in electronic labels for distribution plunges this Friday. Around 9:50 am, the action fell 51.4% to 81 euros.

As often, the market takes fright after a group has been attacked by a short seller. This is the case of SES-imagotag, a victim of Gotham City Research, an investment fund which published a long vitriolic study on the French group on Thursday. Which caused the stock to be booked lower on Thursday and then suspended at the company’s request.

“The information in the report will now arouse lasting mistrust, even though the company will seek to counterattack”, judge Invest Securities.

Gotham Research City, which is betting financially on the stock’s fall via short selling, claims to have identified “accounting irregularities, which lead us to believe that the financial statements of (SES Imagotag) will need to be rectified”. He thus considers that the turnover for the period 2020-2022 is overvalued by at least 7% to 13% and the Ebitda for 2022 by 106%, specifying that an “independent and exhaustive” investigation should confirm his conclusions. .

Accusations of inflating accounts

To simplify, Gotham Research City Research is questioning transactions with BOE Technology Group, a Chinese company allied with SES-imagotag (also its largest supplier and one of its customers) and which owns 32% of the company’s capital. via a subsidiary, judging that these transactions constitute loops and “artificially” inflate the turnover of the company. In other words, Gotham City Research suspects these sales to be fictitious.

The fund also considers that the recent contract with Walmart is not profitable for SES-imagotag. He also believes that the action should be treated between 15 and 30 euros if the title of the company were to be exchanged on the basis of its comparables (against 166.8 euros currently).

The company responded in a statement released after the market closed assuring that Gotham City Research’s report contains “numerous gross inaccuracies and/or misunderstandings, which the company will address in the coming days.”

SES fights back

SES-imagotag has, however, already begun to respond to accusations relating to its dealings with BOE Technology.

“All of the transactions between SES-imagotag and BOE have been correctly brought to the attention of investors, concluded at market conditions and, where applicable, subject to the procedures provided for in French law with regard to transactions with related parties. “, argues the tenant of the SBF 120.

“In addition, transactions with BOE recorded as revenue in SES-imagotag’s corporate financial statements are eliminated in SES-imagotag’s consolidated financial statements, in accordance with applicable accounting rules. These transactions have no impact on the turnover or the Ebitda[grossoperatingresult)ofthegroup”continuesthecompany;[résultatbrutd’exploitation)dugroupe”poursuitl’entreprise;

SES-imagotag also points out that Gotham City Research holds short positions on its stock and that it is therefore in its interest that the price fall. It’s the same principle with its short-selling funds: identify companies that they believe have serious problems and bet on a drop in the stock by revealing its problems.

SES-imagotag also indicates that it reserves the possibility “to exercise its rights with a view to subsequent legal action, if necessary”.

Examples of well-founded attacks

It is obviously difficult at this stage to know how far the virulent attack of Gotham City Research City will go.

In a note published Friday morning, Stifel believes that several of the fund’s arguments seem “unconvincing”, namely those relating to the revenue loops with BOE Technology, the questioning of the company’s business model, as well as the contract with Walmart. .

“We believe that SESL’s (SES-imagotag) strategy and business model remain very relevant. Likewise, even without the details of the Walmart contract, we have enough elements to consider it profitable”, explains the design office.

Stifel, on the other hand, does not comment on the suspicions of accounting irregularities issued by Gotham City Research, explaining that he is “unable at this stage” to comment on them.

Several recent examples of attacks by short sellers show that their criticisms should not be overlooked as they have sometimes helped to uncover sometimes high-profile financial scandals. As early as 2016, Zatarra Research had expressed serious doubts about the practices of Wirecard, a German payments group which ended up going bankrupt in June 2020 following huge accounting irregularities. This case was a cataclysm for finance across the Rhine, because Wirecard had become a rising star on the Frankfurt Stock Exchange to the point of integrating the Dax.

To return to Gotham City Research, the fund made a name for itself by demonstrating in 2014 that the flattering turnover of the Spanish public WiFi specialist Gowex was almost entirely fictitious. This resulted in the company’s bankruptcy and delisting in 2018.

Julien Marion – ©2023 BFM Bourse