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Mockney wheeler dealer “Del Boy” Trotter was infamous for his French language faux pas and council flat in Nelson Mandela House, London. Coincidentally, SES-imagotag is located in Nelson Mandela Place, Paris.
While SES-imagotag effectively refuted the claims made by short seller Gotham City without any linguistic blunders, international investors are still left somewhat uncertain.
This response from the internet-of-things company managed to mitigate the nearly 60% drop in shares from the previous week. Gotham City alleges that revenues and ebitda have been overstated, which poses a challenge for SES-imagotag to regain its premium valuation.
SES-imagotag specializes in manufacturing and selling electronic shelf labels to retailers, offering a convenient solution for digitizing brick-and-mortar stores. Their sales have skyrocketed from €250mn in 2019 to a projected €800mn this year, boasting a compound annual growth rate of 27%. This easily surpasses competitors Pricer of Sweden and Solum from Korea.
Gotham City claims that SES-imagotag’s revenues are artificially inflated through related party transactions in a circular chain. However, the company vehemently denies these allegations.
SES’s aggressive accounting practices do not contribute favorably to their overall reputation. The company capitalizes a higher percentage of its research and development spend in relation to revenues compared to Pricer. Furthermore, their free cash flow remains negative despite substantial ebitda growth in recent years, with SES citing significant investments as the cause.
Shareholders should be cautious due to the cash shortfall. Similar concerns raised by short seller Muddy Waters in 2019 adversely affected the highly-valued shares of legal financier Burford.
Before Gotham City’s attack, SES shares had quintupled in value over five years. In terms of price-to-sales multiples, SES’s valuation was significantly higher than its peers and well above the price-to-earnings multiples.
Del Boy’s iconic transport was a Reliant Robin, notorious for tipping over during quick maneuvers. A similar scenario seems to have unfolded for SES. Although Gotham City’s more sensationalized claims are under dispute, SES’s accounting practices have undeniably been too aggressive. Thus, the correction in share price is warranted.
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