The reproaches from Hindenburg Research directed at Temenos are severe and have certainly left their mark. The banking software company rejected the accusations without disproving them in any detail. This coming week, the management must now do precisely that at the shareholders’ conference and the next Capital Markets Day.
The publication of the report by Hindenburg Research has shocked Temenos investors. On Thursday, the shares dropped in price by around 34 percent at times. On Friday, they lost even more ground during early trading. They are now listed 4.8 percent lower, at 60.49 francs.
Short seller Hindenburg reproached Temenos for major accounting irregularities, poor product quality, and failed implementation.
Factual Inaccuracies and Analytical Errors
The response from Temenos also came on Thursday evening. Here, the company «fundamentally» refuted the accusations. «The report contains factual inaccuracies and analytical errors, together with false and misleading allegations, which are intended to adversely impact the Company’s share price,» reads the response. It also states that the company was not asked for any comment in advance of the publication.
The Geneva-based banking software specialist also confirmed key values on the 2023 business performance as stated in January: for instance, that the recurring revenue has exceeded its target, and that income from licensing and EBIT are «significantly» above the lower threshold of the target range. The free cash flow, at 232.6 million dollars, has risen by 26 percent and will continue to grow.
Massive Reputational Damage?
Among analysts, the Hindenburg report is viewed above all as a loss in trust and reputational damage for the company. The experts at private bank Julius Baer are set to review the assessment. Investment bank Vontobel has already reduced its recommendation to «hold» the shares and reduced the target price from 96 to 72 francs.
In a credit analysis of Temenos conducted by Zuercher Kantonalbank (ZKB), the company’s focus on adjusted figures and the increasing discrepancy from the IFRS figures are criticized. Hindenburg also reproached Temenos for practices which are rightly worthy of criticism, however these practices are in line with the accounting standards, wrote the ZKB analysts. For example, extending amortization periods is perfectly acceptable.
A Difficult Search for a CEO
«We do not believe that the reproaches are completely unfounded, however, from a bondholder’s perspective, we see the direct consequences as limited, based on what we know at present.» ZKB confirms the BB+ rating of Temenos with unchanged negative prospects.
The state-owned bank warned, however, that holding onto the financial targets during the search for a new CEO could be detrimental. This might also be the cause of the failed takeover attempts which have circulated in past years. «We would hope that Temenos is able to provide a detailed comment on the accusations at the latest when the figures are published, or on Capital Markets Day next week,» the ZKB statement continues.
