Where next for Wirecard shares?
We examine Wirecard’s spectacular rise, its recent difficulties and where the company may be heading next.
Wirecard was not always Wirecard
Wirecard (WDI) emerged some 16 years ago from a reverse merger with the virtual call centre company InfoGenie Europe AG. During the Group's 2004 Annual Letter, Markus Braun, Wirecard’s long-standing but now ex-Chief Executive, described this takeover as one of the company’s ‘most important’ and ‘most successful’ chapters.
At the time, Mr Braun thanked investors for the trust they had placed in his management team, going on to say that it was this investor support that made ‘Wire Card's success story possible in the first place.’
Though a relatively small firm at the time – with the freshly minted Wire Card AG Group delivering total revenues of €40.46 million against an operating profit (EBIT) of just €6.05 million, for the period ending 31 December, 2004 – the company’s ambitions were large.
By April 2019, the trust that investors had put in the company looks to have been well rewarded. Between 20 November 2006 and 24 April 2019 – the Wirecard share price had increased by more than 2,000%, a staggering return by any measure.
Wirecard – riding the secular shift towards electronic payments – also saw its underlying business surge between 2004 to 2019. Specifically, in FY18, WDI reported total revenues of €2,016 million (+35.44% YoY), against earnings (EBITDA) of €560.5 million (+36.61% YoY). The shareholder-friendly company even increased its FY18 dividend to €0.20 per share – up from €0.18 per share, from the year prior.
Mind you, even as its payments segment grew at a rapid click, the company continued to book revenue from its Call Centre & Communication Services (CCOS) segment – as if to remind investors just how far it had come. Indeed, relative to the explosive growth of its payments operations, the CCOS segment was relatively unremarkable, in FY18 delivering revenue of €9.1 million and negative earnings (EBITDA) of €0.5 million.
Remarkable or not, Wirecard’s Chief Executive spoke optimistically of the future during the FY18 results, saying that ‘Wirecard has a fantastic future ahead of it.’
Beneath this optimism, the company’s FY18 results were delivered amongst a cloud of troublesome accusations. In early-2019, the much-respected Financial Times (FT) alleged that the payments company – now a member of the illustrious DAX 30 – had committed everything from forgery to the falsification of accounts. The FT also questioned the legitimacy of Wirecard’s accounting and business practices.
Without delving into those accusations, by October 2019 Wirecard said it was hiring KPGM to conduct an independent audit into these allegations. At the time, Mr Braun, speaking to Reuters, described the move as an ‘active strategic step’ and reassured investors that ‘The allegations are old, we have investigated them and found them to be completely baseless.’
‘The independent examination by KPMG should lay to rest any remaining speculation and give fresh confidence to the market. We intend to present the results as soon as possible,’ Mr Braun stressed.
KPMG’s independent examination – delivered in April 2020 – neither cleared up the situation nor saw the market’s confidence in the company fully restored. Rather, KPMG said that while there appeared no need for Wirecard to restate its earnings, the consultancy was unable to obtain/ review all of the data to verify the company’s past revenues. Wirecard was swift in explaining this issue, noting that it was 'because the required data was primarily in the control of third parties.’
Even so, the Wirecard share price plunged 26% in response to this news. But regardless of what the market was doing, Mr Braun remained ever-confident, saying: ‘I would like to underline that, overall and in every point, the allegations were not confirmed.’
For the sceptics, what came next likely proved unsurprising. Yet for the market – which had mostly championed, and potentially even profited from Wirecard’s rise as a global payments heavyweight – the reaction was likely shock.
Wirecard’s most important chapter
By June 2020, the company, now having already having pushed back its FY19 results, revealed a major stumbling block to their publication: According to the company’s long-standing auditor, Ernst & Young (EY), some €1.9 billion in cash (US$2.1 billion) – equating to roughly a quarter of the company’s balance sheet – could not be located.
Wirecard first said ‘fraud of considerable proportions’ could not be ruled out and then on 22 June added that the ‘prevailing likelihood’ was that the €1.9 billion simply didn’t exist.
Following that news, between the market close on 17 June and 23 June, the company saw its share price decimated by investors, dropping from €104.50 per share to just €17.16 per share – implying a downwards move of over 80%. Amidst all that, Markus Braun resigned as CEO before being detained by police on suspicion of accounting fraud and market manipulation.
Yet investors – ever-unpredictable as they are, bid the Wirecard share price up 18.82% on Tuesday, 23 June, even as the company’s future remained gripped by uncertainty.
How to trade Wirecard shares
With IG, you can trade on the best trading platform and back whether you think Wirecard’s shares will rise or fall in value. Go long (buy) if you think they will increase in value, or go short (sell) if you think they will decrease in value.
To take a position, follow these simple steps:
- Create an IG trading account or log in to your existing account
- Type the ‘Wirecard’ or ‘WDI’ in the search bar and select it
- Choose your position size
- Click on ‘buy’ or ‘sell’ in the deal ticket
- Confirm the trade
Or click here to learn more about how to buy and trade shares with IG.
Wirecard share price: where next?
It only took five trading sessions for the Wirecard (WDI) share price to collapse 80% and for billions in equity to be destroyed. Adoring sell-side analysts that had once fawned over Wirecard due to its high growth all but disappeared. In the wake of these still-unfolding events, analyst Buy ratings on the stock have dropped to zero, according to Bloomberg.
‘A total of 18 analysts have either suspended their coverage or put their rating under review, citing a lack of fundamentals,’ Bloomberg reported.
Investors and traders will likely be keen to see how the analyst consensus changes once more clarity on the stock’s fundamentals arise.
On a more granular level, Bank of America analysts currently have an Underperform rating and a price target of €14.00 per share on Wirecard; Citi analysts have a Neutral rating and no price target on the stock; while Bryan Garnier analysts have a Sell rating, with the WDI price target currently under review.
Moreover, speaking to the deep scepticism that now hovers over the stock’s future, on Monday, Josh Levin, an analyst from Autonomous Research, tore up his price target on Wirecard, lowering it from €39.00 per share to €0 per share.
Yet as we noted above, all of this hasn’t stopped traders and investors from attempting to profit on Wirecard’s price fluctuations – with the stock finishing out the 23 June session up 18%. Irrational or not, speaking of this price action, IG’s chief market analyst Chris Beauchamp argued that the stock is now trading on fundamental news – with a key focus on whether or not the company will survive.
Yet with such elevated levels of uncertainty around Wirecard the company, Mr Beauchamp stressed that:
‘After such a huge downward move some might expect a bounce, but selling volume has been immense and others might follow suit. The volatility in this stock is huge as well and thus traders must be careful in their stop placement and positioning sizing.’
‘While the shares might appear to be an ‘obvious’ sell, there is always the potential for a quick and dramatic rebound, even if it does not last,’ Mr Beauchamp finished.
Other developments to consider moving forward
Elsewhere, adding to the uncertain outlook, reports have begun to emerge that the Bank of China is considering ending its credit facility to Wirecard; while ratings agency Moody's on Monday withdrew its credit rating on the payments company, citing ‘insufficient independently verifiable financial information due to accounting irregularities which have not been resolved,' as the primary reason.
Furthermore, Wirecard on Monday withdrew its assessment of its previously released FY19 preliminary results, while adding that ‘Potential effects on the annual financial accounts of previous years cannot be excluded,' going forward.
Looking at what the company believes its own next steps are, Wirecard also said it was working with Houlihan Lokey – a US-based investment bank – in regards to potential financing strategies for the company; while further noting that it may be required to pursue cost cutting measures, restructuring activities, and/or dispose of, or terminate business units and product segments.
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This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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