Will the iSignthis share price sink or swim on its return to trade?

iSighthis Ltd (ASX: ISX) shares are still locked in a trading half after both ASIC and the ASX pulled the plug on the stock pending the outcome of a regulatory investigation into a “number of issues” around the business. 

The regulators also acknowledged the volatile share price had caught their attention, with iSignthis’s management releasing a press release yesterday claiming there’s nothing to worry about and that it has faced audits before with no problems. 

In early September the payments and identity business was the target of a scathing report from independent financial watchdog Ownership Matters that questioned its disclosure around share ownership, related party transactions, and the meeting of a revenue target that released large amounts of performance rights (shares) to management. 

iSignthis responded that the targets were met legitimately and Ownership Matter’s assertions were incorrect or misrepresented how performance targets were met. The matter is complex, but whether management met performance targets or not isn’t really material to the underlying operating business or its outlook. 

iSignthis’s true value will depend on the credibility of a business model it boasts merges a payments and ID verification eco-system for enterprise financial services clients.

The company also claims to be in the process of applying for a banking license as it pushes into the banking software, payments, and API spaces. 

Over the six months to June 30 2019 it reported a loss of $729,190 on revenue of just $7.4 million, compared to a market cap around $1.16 billion based on a $1.07 share price and 1.09 billion shares on issue. 

It has also disclosed to the ASX that it earns fees as a percentage of the gross processing turnover volume (GPTV) of the payments its enterprise clients process. What it defines as revenue can be earned in multiple other ways also disclosed in the second chart below including merchant service fees (MSF) multiplied by GPTV. 

Source: iSighthis presentations, Oct 1 2019, and Jan 31 2019. 

The day prior to the regulators pulling the plug on the share trading it reported annualised GPTV had grown $800 million over just the month of September to $1.9 billion. 

Since the end of just April 2019 the annualised GPTV has climbed nearly 6x from $380 million to more than $1.9 billion according to iSignthis.

If iSignthis is able to simply claim fees on payment volumes it would be a powerful business model especially given the breakneck GPTV growth rates it’s reporting. 

These eye catching numbers, the previous bad press, and ballistic share price appear to have spooked regulators into action. 

The business model is complex and the trading halt imposed by regulators is an ominous sign given the laissez faire or caveat emptor approach usually taken until a company blows itself and shareholders’ capital up.

In other words it’s pretty hard to get yourself suspended unless the regulators have serious concerns over disclosure or other compliance with financial services laws.

Previous ‘tech’ companies that soared on dubious to false representations only to crash include Getswift Ltd (ASX: GSW), Yojee Ltd (ASX: YOJ), Reffind Ltd (ASX: RFN) and 1-Page Ltd (ASX: 1PG).

In fairness to iSignthis it is reporting material sales so is in a different league to the sorry bunch above, if we assume that what comes out of the regulatory wash up is not too serious.

This story is set to rumble on for a while yet.