Company Overview: SelfWealth Ltd (ASX: SWF) provides an online trading platform to its clients and has a presence in the Australian and the US markets. It charges a flat fee of A$9.50 in ASX trades and US$9.50 for trades in the US. The platform interface provides real time-pricing of the stock and also gives clients access to detailed stock reports.

SWF Details

Decent Increase in Top-Line on the Back of Growth in Active Traders: The company continues to deliver impressive performance and has reported an increase in its market share. Its addressable market has doubled in the past 24 months and stood at ~1.43 million, compared to the levels of ~1.06 million in June 2020.

Launch Into the US Market:

• The company has made its entry into the US market in December 2020 and has launched US trading platform.
• It reported increased traction in the US platform, with over 29% of total Active Traders adopting the platform within the first six months of the launch.

Look at FY21 Performance:

The company clocked impressive growth performance in FY21, driven by low-interest rates and the digitalisation of investment markets.

• Revenue grew by ~136% to $18.36 million in FY21, compared to $7.82 million in FY20. This was achieved owing to an increase in Active Traders and a rise in volumes of Annual Trades.
• During the year, revenue from international trade delivered $1.2 million in revenue, reflecting higher gross margins than domestic equities.
• Net loss narrowed down to $0.6 million in FY21, from a loss of ~$3 million in FY20.
• SWF ended the period with a cash balance of ~$7.53 million as of 30 June 2021, up from $5.26 million as of 30 June 2020.

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

Active Traders Driving Business Growth:

• The company reported record growth in revenue in FY21 on the back of ~105% increase in Active Traders from 46,445 in FY20 to 95,189 in FY21.
• Annual Trades increased by ~147% from 659,131 in FY20 to 1,630,180 in FY21.
• There was also a significant increase in the Equities Under Administration by ~158% to $6.5 million in FY21, from $2.5 million in FY20.
• Client cash grew by ~43% to $523 million in FY21, compared to FY20.

Top 10 Shareholders: The top 10 shareholders together form around 33.63% 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 the scalability in its business model with an increase in gross margin performance to ~41% in FY21, compared to ~35% in FY20. Net margin improved to negative 3.5% in FY21, from a level of negative 37.9% in FY20.  

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

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

• Financial Risks: It is exposed to financial risks, which comprises credit risk, liquidity risk and interest rate risk.
• Technology Risk: SWF’s business model makes it dependent on its technological platform for business success and trading activities. Any malfunction or lag in the technological aspects might impact the operations and profitability.
• Competition Risk: The company’s line of business makes it prone to stiff competition from other peers for a share of the market.

Outlook: The growth of the company in recent years demonstrates a scalable business model with an increase in gross margins. It completed a $11.74 million capital raise in August 2021 in order to further enhance its technological interface, expand the product development team and invest in its data & analytics capabilities. Going forward, the company will look to diversify its revenue streams driven by the expansion of its core offerings and product portfolio.

Stock Recommendation: The company has recently announced the appointment of Cath Whitaker to the Board of the company, effective 6 September 2021. Cath Whitaker, who has over 20 years of experience in financial services, commenced her role as CEO of SelfWealth in April 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 positive return of ~17.56% in the past one month and a negative return of ~30.95% in the past six months. On a TTM basis, the stock of SWF is trading at an EV/Sales multiple of 5x, lower than the industry average (Financials) of 8.1x. Considering the current trading levels, valuation on TTM basis,  impressive financial performance, robust growth in top-line, increased in Active Traders, rise in cash profile, technical levels mentioned below, and the key risks associated with the business, we recommend a ‘Speculative Buy’ rating on the stock at the current market price of $0.40, (as on 10 September 2021, 10:00 AM (GMT+10), Sydney, Eastern Australia)

Technical Insights:

On the daily chart, SWF stock price broke out the downward sloping trendline resistance at AUD 0.38 level on September 09, 2021. Prices registered a decisive break out, which suggests a change in the trend from downward to upward. After the breakout, prices are trading above the downward sloping trendline, which indicates bulls are in action. The momentum oscillator RSI (14-Period) is trading at ~64.06 level, which indicates positive momentum in the price. An important support level for the stock is placed at AUD 0.32, while the key resistance level is placed at AUD 0.480.

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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