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SMA Solar Technology AG (XETRA:S92)
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We are short SMA Solar Technology AG (XETRA: S92) because, in our opinion, the company has been doctoring its financial statements for the past five years. SMA unjust capitalized EUR 146 million in expenses which ultimately boosted SMA’s profitability by the same amount. Furthermore, SMA Solar misstated its financials by ignoring basic IFRS standards, inventing its own IFRS standards, and removing millions of euros from line items. In our opinion, SMA Solar is not as profitable as it claims to be.
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Next to boosting its profitability, the company’s intellectual property is threatened by several lawsuits from competitors and annulments of patents for SMA’s key technologies.
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- SMA Solar falsely capitalized development costs and recorded them in a subaccount called ‘Intangible assets in progress,’ which is neither amortized nor tested annually for impairment. This is not in accordance with IFRS.
- The subaccount grew by 1,100% in three and a half years and amounted to around EUR 71 million in mid-2023, which corresponds to around 20% of SMA's non-current assets.
- SMA Solar removed language on IAS 38 from its annual reports to disguise the fact that the subaccounts were not being amortized or tested for impairment. The financial statements are not in accordance with IFRS.
- The company invented its own IFRS standards to make investors believe that its fabricated non-GAAP FCF measure was in line with IFRS. However, that FCF metric was changed after it no longer fit SMA's narrative. For example, the company removed 38 million euros from FCF.
- SMA Solar's auditor didn’t notice anything, and despite the high carrying value of the ‘intangible asset in progress’ subaccount, it is not a key audit matter.
- SMA Solar's Audit Committee is no help either. Despite being the highest-paid board members, all four lack reportable experience in auditing and IFRS. For example, the chairwoman runs a horse breeding farm and a tax advisory as a side hustle.
- SMA Solar is threatened by the most recent invalidation of its intellectual property and is further under pressure from competitor lawsuits – most recently by a patent lawsuit from its former investment Tigo Energy relating to RSD, a key component in any PV system.
- The incorrect capitalization boosted SMA Solar’s profitability for years. The company is not as profitable as it is perceived by the public:
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Initial Disclosure: After in-depth analysis and research, we have taken a short position in the herein mentioned company ("Covered Issuer"). As of the publication date of a NINGI Research’s report, NINGI Research Related Persons (along with or through its members, partners, affiliates, employees, and/or consultants), clients, and investors, and/or their clients and investors have a short position in the securities of a Covered Issuer (and options, swaps, and other derivatives related to these securities), and therefore will realize significant gains in the event that the prices of a Covered Issuer’s securities decline. NINGI Research and NINGI Research Related Persons are likely to continue to transact in Covered Issuers’ securities for an indefinite period after an initial report on a Covered Issuer, and such position(s) may be long, short, or neutral at any time hereafter regardless of their initial position(s) and views as stated in the NINGI Research’s research. This report represents our opinion, and we encourage every reader to do their own due diligence. This should not be considered an offer to sell or a solicitation of an offer to buy any security or investment product, nor do we intend to make any such an offer, nor shall any security be offered or sold to any person, in any jurisdiction in which such offer would be unlawful under the securities laws of such jurisdiction, nor as investment advice or a recommendation to buy or sell any investment products or to make any type of investment, or as an opinion on the merits or otherwise of any particular investment or investment strategy. NINGI Research Related Person is defined as: NINGI Research and its affiliates and related parties, including, but not limited to, any principals, officers, directors, employees, members, clients, investors, consultants, and agents. One or more NINGI Research Related Persons have provided NINGI Research with publicly available information that NINGI Research has included in this report, following NINGI Research’s independent due diligence. Please read the full disclaimer at the beginning of the report.
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