Silverlake

Silverlake: (S$0.45) Dismissed allegations but share price tanked on overhang concerns
Silverlake tanked 44% to a low of $0.355 at the open before recovering to the current $0.45 after it resumed trading today.

This followed its 22% plunge last Fri from $0.81 following a short sell report, which accused the financial software developer of engaging in suspicious related party transactions to boost its profit margins.

In a reply to a SGX query, Silverlake dismissed the allegations in the anonymous report as baseless and insinuated that the authors may be motivated by potential gains from short positions.

The report alleges possible impropriety in certain related party transactions between the group and private companies owned by the controlling shareholder, Goh Peng Ooi. These include the acquisition of Silverlake Adaptive Applications & Continuous Improvement Services in 2006, as well as the structured services business and the QR Group in 2010.

The group is seeking legal advice to defend its interests and engaging independent professional services firm Deloitte to undertake a review of the allegations and will publish its findings and conclusions on the report's veracity in due course.

The almost 50% collapse in its share price has wiped out more than $1b of its market value is three days and leaves it with a trailing P/E of 10.8x relative to its five-year historical average of 19.5x. This compares to global peers SAP SE (19x), Infosys (19.9x), Oracle Financial Services Software (29x) and Tata Consultancy Services (25x).

With no major contracts in the horizon, Maybank-KE has shaved its earnings forecasts and applied a 30% discount to its DCF valuation to factor in the overhang from the latest saga. As such, the house has cut its TP to $0.61 from $1.15 but kept its Hold rating pending better transparency.