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Feb 8, 2019

S3 Analytics: Wirecard Shorts up $321 million in February

German global payments company Wirecard AG’s (WDI GR) stock price fell 17.16% this week, their lowest stock price since April 2017, after a report by the Financial Times alleging the firm of accounting fraud. Today Singapore police raided their local offices, which dragged down Wirecard’s stock price over 17 euro. Wirecard’s CEO, Markus Braun, maintains that the report and allegations are based on “false allegations” based on “agreements and invoices that may be fictitious.”

Wirecard is the fourth largest short in the Data Processing and Outsourced Services Sector, behind Visa (V US), Square (SQ US) and Paypal (PYPL US), jumping ahead of Fiserv (FISV US) and Mastercard (MA US) in a week that saw shares shorted increase by 7.7 million shares, +167%. Wirecard short interest increased from $578 million to $1.35 billion, +133%, in just a week. In aggregate, short interest in the Data Processing and Outsourced Services Sub-Industry, which is the ninth most shorted sub-industry worldwide, increased by $1.96 billion over the last week, the third largest move of all sub-industries.

Wirecard short selling has been very active over the last week, although slowing down in the later half, and we expect short selling to continue in the short term as more information is released from the German and Singapore investigations. Short sellers have been spurred on by a daily dose of new negative Wirecard news and the fact that they are up $321 million in mark-to-market profits over the last week.

If further investigation into the fraud allegations backs up Markus Braun’s claim that they are unfounded we can expect an avalanche of millions of shares of short covering as shorts look to realize some of their short term profits before they evaporate. The buying pressure of short sellers covering and long shareholders buying into a momentum based rally we could see Wirecard’s stock price quickly soar back up above the 150 euro/share level. But if the allegations are not refuted and prove to be valid, both long and short sellers will continue to eat away at the over 400% return that Wirecard enjoyed from 2016 to late 2018.

Want deeper insight into the above analysis?
Contact:  Ihor.Dusaniwsky@S3Partners.net
                 Managing Director Predictive Analytics, S3 Partners, LLC

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