Well-known short seller, Spruce Point Capital said on Wednesday said it opened a new position in Broadridge Financial Solutions, Inc. (US:BR), a fintech firm whose shares the firm believes will fall 65% to 75%, citing poor management, possible US Securities & Exchange Commission probe, and “shareholder abuse.”
Broadridge, an S&P 500 member, describes its business as providing advanced technology and operations, communications, data and analytics for the financial services industry and businesses.
On the other hand, Spruce Point says investors wrongly see the firm as a defensive financial technology opportunity, operating like a software-as-a-service (SaaS).
“We believe it is largely a low value-added business process outsourcer (BPO) with rising financial stress and has dubious technology prowess. We believe BR is experiencing growing pressures and has wasted over $1.0 billion in a struggling technology partnership with UBS Wealth Management Americas. We believe it lacks economic viability given it has an estimated 70-to 80-year-payback period,” Spruce point said.
The short seller called out Broadridge’s capitalization of hundreds of millions of unrecoverable technology conversion costs that it claimed should be immediately expensed, a move that would, it says, put the company in default.
“Furthermore,” the short seller said, “we believe BR has abused shareholders by reaping lucrative cash compensation tied to the UBS project on the false premise that “Closed Sales” would quickly convert to revenues. In reality, no single dollar of revenue is expected to be booked until five years after the project started. Investors should be put on red alert that BR recently advertised a job to replace its Chief Accounting Officer and replaced its Chief Technology Officer.”
Insiders don’t appear too confident in Broadridge’s prospects either, with several officers selling multiple lots over the last several months.
Broadridge last made news on Sept. 15, unveiling a partnership with Coinbase (US:COIN), offering interoperability between Coinbase Prime and Broadridge Trading and Connectivity Solutions’ NYFIX order-routing network.
Broadridge said its technology allows NYFIX clients to route order flow to Coinbase Prime via the FIX protocol. It also allows buy-side traders to source crypto liquidity from Coinbase and trade from their OMS. The solution is now offered to US domestic clients and will roll out to additional regions as regulations allow.
On Sept. 12, Broadridge reported fiscal fourth-quarter financial results, saying net income fell five percent to $248 million, while adjusted earnings rose 21% to $314 million. Fully diluted earnings per share decreased 5% to $2.09, and adjusted earnings per share increased 21% to $2.65.
Revenue rose 12% to $1,723 million from $1,532 million in the prior year.
This article originally appeared on Fintel
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