Despite efforts by Swiss technology firm Temenos to address recent allegations made by short seller Hindenburg Research, the company’s shares continued to plummet, resulting in a staggering $2 billion loss in market capitalization.
Hindenburg Research’s report, released on Thursday, accuses Temenos of employing “aggressive accounting tactics” to artificially inflate its share price while masking underlying issues that have been causing customer attrition within the company.
In response, Temenos posted a statement on its website denouncing Hindenburg’s report for containing factual inaccuracies and false and misleading allegations. The Swiss banking technology giant firmly refutes the claims made by the short seller.
Following a significant 24.9% decline on Thursday, Temenos shares suffered another blow on Friday, falling 8%. However, it is important to note that the company’s stock had experienced an impressive surge of 54% in 2023.
Hindenburg Research further alleges that Temenos CEO Andreas Andreades not only endorsed manipulative accounting practices within the company but also failed to address product shortcomings that have resulted in widespread customer dissatisfaction.
The short seller’s report highlights that Temenos’ executives have sold a staggering $1.1 billion worth of stock in the company over the past decade, while only purchasing $26 million worth of shares during the same period.
Temenos did not provide specific details regarding the allegations it refutes and clarified that Hindenburg had not made any prior contact with the company before publishing its report.
The Swiss banking technology company aims to release audited results for the full year 2023 on February 19 and has expressed confidence in its business strength, financial performance, and cash position. Market participants eagerly await additional insights during the company’s Capital Markets Day on February 20.
Temenos Faces Questions from Short Seller Hindenburg Research
Hindenburg Research, known for its investigative reports on companies, has recently published a report raising concerns about Temenos, a Swiss fintech firm. In response, Temenos has stated its commitment to thoroughly investigate the matter and remain transparent with its data. However, further comments from the company were not provided.
The report by Hindenburg Research focuses on Temenos’ investments in research and development (R&D). According to the short seller, Temenos has categorized client-specific implementation costs as investments in R&D, resulting in a 62% higher R&D capitalization rate compared to its peers. This practice, Hindenburg claims, has artificially boosted Temenos’ pre-tax profits by 29.5% for 2022.
However, Jefferies analysts, led by Charles Brennan, have raised doubts about Hindenburg’s claims. They argue that while Temenos has capitalized more costs than its peers in the past, this approach has been openly debated by investors. The analysts suggest that between 2018 and 2020, Temenos only experienced incremental benefits from this practice, and its current net capitalization appears to be in line with its industry peers.
Hindenburg Research, named after the Hindenburg Disaster of 1937, aims to uncover “man-made disasters floating around in the market” using hard-to-find information from unconventional sources. Their investigation into Temenos spanned four months and involved interviews with the company’s customers and former executives.
It is worth noting that Hindenburg Research gained significant attention in 2020 when it published a report exposing allegations of fraud within electric vehicle maker Nikola Corporation. As a result, Nikola’s shares dropped by 40%.
Temenos’ response to the report by Hindenburg Research remains undisclosed at this time.
