The WiseTech Global Ltd (ASX: WTC) share price has crashed lower on Thursday after it became the latest company to be targeted by a scathing short seller report.
The logistics solutions company's shares sank 10% to $30.00 before being paused.
What has happened?
Late this morning J Capital released a report claiming that WiseTech Global is overstating its profits.
The short seller estimates "that overstated profit in the three years since WiseTech listed may be as high as $116 mln. That would be an overstatement of 178%."
It also alleges that the company is overstating its organic growth. "Using the company's own numbers, we estimate WiseTech's underlying, organic growth rate at 10% not the 25% claimed. That means an estimated 80% of the company's top-line growth is from purchased revenue."
After obtaining financial fillings of its European subsidiaries, J Capital has doubts over its European business. It alleges that the company's "European revenues were overstated by as much as $48 mln in FY 2018."
Those fillings "showed declines in revenue and that support our estimates, and we have spoken with former employees who reported much lower organic growth."
J Capital believes WiseTech has been able to do this "through an Australian peculiarity called the deed of cross guarantee."
This means "the auditors aren't looking at the numbers closely enough. WiseTech's Australian subsidiaries, through which much of the international revenue has been channeled, have been shielded from audit scrutiny."
Speaking of which, the short seller was quick to point out that on Tuesday, the chair of the Audit and Risk Management Committee, Christine Holman, resigned after 10 months with the company.
The report concludes: "We have spent months analyzing the company and concluded that WiseTech is manipulating its accounts to make growth and profit appear higher than they really are."
