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iSignthis admits GPTV calculations based on estimates, shares halted

iSignthis Ltd (ASX: ISX) shares are still in a trading halt imposed by regulators on the back of concerns over compliance with its continuous disclosure obligations and financial reporting among other things. 

The stock has now been suspended for nearly a month and generally the longer a company is involuntarily suspended the gloomier the picture becomes.

Regulatory worries

There are a couple of core issues regulators appear to have with the reporting of the ‘paydentity’ company.

First up is the admission that ISX ‘contract service fee revenues’ between June 2018 to December 2018 across Australia, the Netherlands, and Cyprus fell from $5 million to $1.09 million.

According to today’s update the huge drop off is explicable by ISX suddenly losing clients in the CFD, FX trading and other financial services space. 

However, previous media reports have picked up on a report from self-styled financial watchdog Ownership Matters that questioned how iSignthis marginally met revenue targets that released huge amounts of share options for management.

GPTV

The ASX’s compliance team also questioned how iSignthis calculated its gross processing transaction volume (GPTV) figures from contracted clients between January through June 2018. The regulator also queried how iSignthis defined a “contracted” client.

Worryingly for shareholders iSignthis admitted the explosive GPTV growth numbers were only based on estimates provided by ‘contracted’ clients. It also stated it only used the estimates for inclusion in its GPTV reporting where it assessed the estimates were “plausible”. 

Between October 2018 and September 2019 the iSignthis share price went from just 11 cents to $1.76 with its reporting of explosive monthly GPTV growth fuelling the rise.

Now it’s known the GPTV figures are based on estimates it brings into question a lot of the company’s credibility over its reporting. 

In today’s release to the ASX a number of other queries from the regulator are answered that relate to the accuracy of iSignthis’s prior reporting and client base. 

What happens now?

According to today’s release iSignthis responded to the ASX’s compliance team on October 25 to meet the October 26 deadline imposed. However, the stock is still suspended and if it does not return to trade this week it suggests the regulator is still not satisfied. 

Given the issues around this business and high valuation I’d suggest giving iSignthis shares a wide berth. 

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Motley Fool contributor Tom Richardson owns shares of Dicker Data Limited.

You can find Tom on Twitter @tommyr345

The Motley Fool Australia owns shares of and has recommended Dicker Data Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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