Company Overview: SelfWealth Limited (ASX: SWF) provides an online share trading platform to its clients. It provides its services in the geographies of Australia and the USA and charges an online flat fee share of $9.50 for its trading services. It delivered a stellar performance in FY21 driven by the structural changes in the sector, with the onset of the COVID-19 pandemic and the digitisation of investment markets.

SWF Details

Scalable Business Model Driven by Increasing Participation from Active Traders: The company is focused on diversifying its revenue streams and has launched US trading in December 2020. It is also looking to build a scalable business model with an improvement in margin performance.

Capital Raise to Support Business Growth:

In order to fuel its growth objectives, SWF has successfully completed $11.74 million in capital raise from institutional and sophisticated investors and an SPP, in August 2021. This will be deployed in the expansion of the technology and product development team, and also to ramp up its marketing activities.

Q1FY22 Quarterly Update:

The company reported decent performance during the quarter with an uptick in the number of active traders and trade volumes.

• Active traders grew by ~13% to 107,461 when compared to the previous quarter. There has also been an increase in trade volumes by 22% to 435,620.
• Operating revenue increased by ~32% to $5.5 million in Q1FY22, compared to $4.2 million in Q1FY21. This was on account of the increase in the number of trades executed during the quarter.
• Client cash saw an impressive increase of ~46% to ~$600 million in Q1FY22, from a level of ~$409 million in the previous corresponding period.
• It ended the period with a comfortable cash position of $17.5 million and have no outstanding debt on the balance sheet.

Increasing Trend in Revenue (Source: Analysis by Kalkine Group)

Industry Recognition:

• SWF has received the Finder Investment Awards 2021 for best Australian share trading account and best share trading platform.
• In another update by market research firm, Investment Trends has reported SelfWealth as the number four player in the online broking market in Australia with respect to primary relationships among online investors.

Top 10 Shareholders: The top 10 shareholders together form around 33.93% of the total shareholding, while the top 4 constitute the maximum holding. LGGC Pty. Ltd. and Abadi Investments Pty. Ltd. are holding a maximum stake in the company at 8.23% and 7.34%, respectively, as also highlighted in the chart below:

Top 10 Shareholders (Source: Analysis by Kalkine Group)

Key Metrics:  The company demonstrated its scalable business model with an increase in its gross margin to 41.3% in FY21, compared to 35.2% in FY20. There has also been an improvement in the net margin to negative 3.5%, compared to negative 37.9% during the same period under consideration.

Profitability Metrics and Liquidity Profile (Source: Analysis by Kalkine Group)

Key Risks: The company is exposed to the following risk factors:

• Interest Rate Risk: The Group is exposed to interest rate risks from its Trading Cash Account deposits, held in the name of customers as well as rates offered to customers.
• Regulatory Risk: Its line of business is prone to prudent regulatory measures, which might have an impact on its operations.
• Liquidity Risk: The company is also prone to liquidity risks given the scenario where it is facing challenges to settle its debt obligations.

Outlook: The company seems to be on track with its objective to empower its customers to achieve financial freedom. It is focused on diversifying its revenue streams and offers a broad basket of products to its retail investors. In this regard, it is planning to rollout cryptocurrency in Q2FY22, and has already commenced roll-out of new product innovation that includes instant deposits and live pricing in Q1FY22. SWF has witnessed the benefits of recent capital raise and investment in Q1FY22 and anticipates the momentum to continue throughout FY22.

Stock Recommendation: The company has appointed its CEO Cath Whitaker to its board as an Executive Director effective from 6 September 2021. As per ASX, the stock of SWF is trading below its average 52-weeks’ levels of $0.300-$0.795. The stock of SWF gave a negative return of ~36.36% in the past six months and a negative return of 9.09% in the past one month. On a TTM basis, the stock of SWF is trading at an EV/Sales multiple of 4.5x, lower than the industry average (Financials) of 8.6x, and thus seems undervalued. Considering the valuation on TTM basis, decent financial performance, increase in number of active traders & trade volumes, strong balance sheet, steps for revenue diversification and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.350, (as on 15 October 2021, 11:32 AM (GMT+10), Sydney, Eastern Australia).

Technical Insights:

SWF stock prices are trading above the horizontal trend line support level at AUD 0.304, and continuously taking support of the same. The leading indicator RSI (14-period) is trading at ~42.88 level, indicating bullish momentum. An important support level for the stock is placed at AUD 0.304, while the key resistance level is placed at AUD 0.43.

SWF Daily Technical Chart, Data Source: REFINITIV

Note: The purple color line in the chart shows RSI (14-period)

Note 1: The reference data in this report has been partly sourced from REFINITIV

Note 2: Investment decisions should be made depending on the investors’ appetite on upside potential, risks, holding duration, and any previous holdings. Investors can consider exiting from the stock if the Target Price mentioned as per the analysis has been achieved and subject to the factors discussed above alongside support levels provided.

Technical Indicators Defined: -

Support: A level where-in the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level where-in the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: It is a level to protect further losses in case of unfavourable movement in the stock prices.

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