Companies actually do a lot to be in the headlines. This allows them to stand out from the crowd, differentiate themselves from the competition and, at best, strengthen their image. The complete opposite is currently the case at Temenos. The management could certainly do without the latest news. The activist investor Hindenburg Reserach, a feared short seller from the USA, accuses the banking software manufacturer of accounting tricks in a multi-page report. As a result, the share recorded a daily loss of almost 30%.
Following the share price debacle, the share is moving sideways. Investors currently appear to be awaiting Temenos' efforts to clear up the serious allegations made by the short seller. Chairman of the Board of Directors Thibault de Tersant of course immediately rejected the accusations of manipulation and commissioned three external auditors. Specifically, these are the consultants from Alvarez & Marsal, who specialize in forensic accounting and investigations, as well as the law firms Schellenberg Wittmer from Switzerland and Sullivan & Cromwell from the USA. "The trust of all stakeholders in our company is of utmost importance and it is our fiduciary duty to thoroughly and robustly investigate all allegations made," commented de Tersant on this step.
However, the CEO succession is still unclear. Following the sudden departure of CEO Max Chuard at the beginning of 2023, former Chairman of the Board of Directors Andreas Andreades took his place on an interim basis. This is still the case today, and no new boss has yet been found. Hindenburg is exerting pressure in this regard and is calling for Andreades to be dismissed with immediate effect. The activist shareholder Petrus Advisers is blowing the same horn. In a letter to the Board of Directors, it criticizes the fact that under Andreades' leadership, a climate of short-term profits has prevailed over longer-term success.
Speaking of profits: Temenos closed the 2023 financial year with growth. In the fourth quarter, adjusted earnings (EBIT) increased by 4%, with the corresponding margin improving slightly to 34% from 33.8% in the previous year. The EBIT growth rate for the year as a whole was as high as 13%. Revenues increased by 5% to USD 1 billion. The Group's figures exceeded consensus expectations. Temenos exceeded estimates by 6% for the important license sales and 4% for total sales. "I was particularly pleased with the strong growth in free cash flow of 26% in the 2023 financial year," commented "still" CEO Andreades on the results, while at the same time looking ahead with confidence: "And now that we have overcome the headwinds from the switch to the subscription business, I expect our free cash flow to continue to grow strongly in the coming years."
For the current year, the planning envisages an increase in software licenses of 7% to 10%, in EBIT of 7% to 9% and in earnings per share of 6% to 8%. Free cash flow (FCF) is again expected to increase by at least 16%. Temenos is also sticking to its medium-term growth plans. EBIT is expected to reach at least USD 570 million and FCF at least USD 700 million. By comparison, an operating result of USD 313 million and FCF of USD 242.6 million were reported for 2023.
However, the operating prospects are currently only playing a minor role on the capital market. The focal point is the exchange of blows between Temenos and Hindenburg. This is not surprising, as investors are reacting particularly sensitively to allegations of manipulation following the German Wirecard scandal. In the coming weeks, the consulting firm Alvarez & Marsal will bring clarity to this with its inspection of the books. The outcome is open, as the short seller has already attacked several companies in recent years without a major bombshell bursting in the end. Around a year ago, Hindenburg targeted the Indian Adani Group, causing its stock market value to halve. In the meantime, the Indian authorities have refused to extend the investigation and Adani's share price has recovered.
Given the current tense situation, investing in Temenos is certainly not an easy undertaking. However, Leonteq offers the perfect investment solution with a Twin-Win Autocall certificate. The product structure enables positive returns both in the event of price gains and price losses. In detail, the certificate behaves as follows: Above the starting level, the certificate benefits 100% from rising prices. This applies up to the autocall trigger level at 120%. If this level is reached on one of the semi-annual observation days, the product is redeemed early and investors also receive the coupon of 20.00% p.a. at the nominal value. The Coupon Trigger Level is at the same level as the Autocall Trigger Level. In the event that there is no early maturity, the high coupon payments are not lost. On the contrary: they are added up and credited when the coupon trigger level is reached.
In the event that the share goes into reverse again, the product converts the falling prices into positive returns up to the barrier at 60% of the initial fixing. Consequently, holders can profit from both directions, i.e. long and short. In the event that Temenos breaches the barrier, the twin-win mechanism switches off and the certificate behaves like a direct investment. In the event of a negative performance of the underlying, it would cause a corresponding loss at maturity. However, if the underlying asset is trading at or above the starting level on the expiry date, the investment would not end in the red despite the breach of the barrier.
Issuer: Leonteq Securities AG (Rating: Fitch BBB)
Coupon Trigger Level: 120%
Memory Coupon
Autocall Frequency: Semi-anually
Participation: 100% in the absolute performance (if no barrier event)
We look forward to answering all of your questions about our products and how they are traded. Please don't hesitate to get in touch! Phone: 058 800 11 11, email info@leonteq.com or contact us here.