SES Imagotag shares plummeted Friday after Gotham City Research put out a scathing report accusing the French electronic shelf labeling systems provider SES Imagotag of overstating its earnings by more than 100%. The short seller said the alleged accounting irregularities might be linked to Imagotag’s close ties to a Chinese firm.
‘‘We believe SESL [Imagotag] financial statements are materially misleading, incorrect, and deficient,’’ wrote Gotham in a report Thursday. The short seller said it had found evidence the company’s revenues between 2020 and 2022 are overstated by at least 7% to 13% while the 2022 adjusted earnings figure is inflated by 106%.
In a statement later the same day, Imagotag rejected the short report for containing ”several gross inaccuracies and/or misunderstandings,” and sait it stands by its financial reports.
The company’s shares closed at 166.80 euros each Wednesday in Paris and were suspended from trading the next day after Gotham’s attack. They gapped down Friday and were trading at 70.60 euros as of 3:26 p.m. local time, a 57% plunge.
The stock would be quoted between 15 and 30 euros if Imagotag were to trade ‘‘simply in-line with peers,’’ said the short outfit, adding that the company has not generated cumulative free cash flow in over 20 years.
Gotham questioned the close relationship between Imagotag and Chinese electronic components maker BOE Technology Group. The report noted that BOE is the French company’s largest shareholder, largest supplier, one of the largest customers, joint-venture partner, and has representatives on the board and audit committee. Given this ‘‘highly entangled’’ configuration, ‘‘potential for financial malfeasance is high,’’ contended Gotham.
Imagotag ”confirms that all transactions between SES-imagotag and BOE have been properly disclosed and entered into at arm’s length conditions,” said the company in its rebuttal Thursday, adding that it ”follows strict procedures aimed at preventing conflicts of interest, in particular with BOE representatives at the Board level abstaining from taking part to decisions regarding transactions with BOE.”
The short seller further argued that a recently announced deal with Walmart is not profitable for Imagotag, which spends 6.66 euros per electronic shelf label (ESL) and gets 5.30 euros per ESL from the U.S. retail giant, according to Gotham.