Company Overview: SelfWealth Ltd (ASX:SWF) is based out of Australia, which provides an independent online trading platform. SWF is focused on its online $9.50 flat fee share trading services in Australia and the United States. The company also operates an online investor community portal service and offers various investment solutions for retail investors.
SWF Details
Rising Market Share to Support Operational and Financial Performance: The company is continuously working to increase its market share, whereby it has taken over big four bank and is now ranked as number 4 by market share. In addition, the addressable market for its services has doubled, backed by the ongoing COVID-19 pandemic, ultra-low global interest rates, as well as the continuing digitization of investment markets. SWF has diversified its business via its entry into US equity markets, which provided new US brokerage and foreign exchange revenue opportunities. The company believes that the industry would continue to evolve and have an opportunity to increase market share at the expense of the large bank incumbent platforms.
Strong Start to FY22: Following a softer Q4FY21, the company witnessed accelerating growth in Q1FY22, evident by a growth of ~31% in operating revenue to $5.5 million on a YoY basis.
- During the quarter, SWF remained focused on new content development and investment webinars. In addition, the company’s strategies involve adding value via the delivery of product innovations, which consists of instant deposits, live pricing, and integration of ESG data.
- SWF’s client cash at the end of Q1FY22 stood at ~$600 million, depicting a rise of 46% on the pcp.
- Additionally, it has reported an active trader base of 107,461 in Q1FY22, up by 86% on a year-over-year basis from 57,816 in Q1FY21.
Operating Revenue (Source: Analysis by Kalkine Group)
Digging Into FY21 Results:
- The company has posted revenues of $18.4 million in FY21, up by 136% from $7.8 million on a pcp basis, driven by an increase in active traders, annual trades and client cash.
- It has reported an improvement in its net losses to $0.6 million in FY21 against a loss of $3 million in FY20, backed by ultra-low interest rates globally and the digitalisation of investment markets.
- The company's cash position stood ~ $7.5 million as of 30 June 2021 vs ~$5.3 million as of 30 June 2020.
Top 10 Shareholders: The top 10 shareholders together form around 34.09% 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 8.21% and 7.33%, respectively, as also highlighted in the chart below:
Top 10 Shareholders (Source: Analysis by Kalkine Group)
Key Metrics: The company reported a rise in the gross margin to 41.3% as compared to 35.2% in FY20. SWF reported a current ratio of 2.84x in FY21 as compared to the industry median of 1.40. Cash cycle of the Group stood at 4.2 days in FY21 as compared to 14.3 days in FY20. On the leverage side, the debt-to-equity ratio for the year stood at 0.01x as compared to the industry median of 0.54x.
Liquidity and Leverage Profile (Source: Analysis by Kalkine Group)
Key Risks:
- Liquidity Risk: The company is exposed to liquidity risk to encounter difficulties settling its debts and meeting its financial obligation.
- Market Volatility: SWF is also exposed to price volatility risk, which could impact the company's operations.
- Forex Headwinds: SWF’s financial and operational performance could be impacted by any adverse movement in foreign currency.
Outlook: During Q2FY22, the company will focus on cryptocurrency development, expansion in a new overseas market, and user experience enhancements to desktop experiences and native mobile apps. The company is confident that the capital raising of $11.74 million in July 2021 would help the company for new product development and aggressive marketing initiatives. The company aims on developing new products, increasing platform functionality, diversified revenue, and aggressive marketing strategies that might drive top-line growth, going forward.
Stock Recommendation: The stock of SWF is trading below its average 52-weeks' levels of $0.285-$0.795. The stock has been corrected by ~10.29 and ~38.99% in the past three and six months, respectively. On a TTM basis, the stock of SWF is trading at an EV/Sales multiple of 4.1x, lower than the industry average (Investment Banking & Investment Services) of 10.6x, thus seems undervalued. Considering the current trading levels, robust topline growth, increase in active traders, decent outlook, current trading level, valuation on a TTM basis, technical factors mentioned above, and the key risks associated with the business, we recommend a 'Speculative Buy' rating on the stock at the closing price of $0.305, down by ~3.175% as of 3 December 2021.
Technical Insights:
SWF prices broke the downward sloping trend line by upside on 29th November 2021 and sustaining above the same from past 5 trading days. RSI (14-period) stood up to ~45 level from the oversold region that indicates bullish momentum build-up on a daily chart. Prices are also trading near to its 21-period SMA that also might support the prices in the coming sessions. Crucial support levels are $0.270 and $0.245 while immediate resistance levels are $0.37 and $0.440.
SWF Daily Technical Chart, Data Source: REFINITIV
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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