Selfwealth Limited

SWF Details
 
Decent Growth in New Clients: Selfwealth Limited (ASX: SWF) provides an online share trading platform. The market capitalisation of the company stood at ~$129.74 Mn as on 8^th July 2020. Recently, the company has released its results for Q4 FY20, wherein it stated that a large number of new clients have joined the retail trading platform of the company and are establishing their investment portfolios. This provided a significant increase in operating revenue of the company, which stood at $4.18 million, reflecting QoQ growth of 101%. During the quarter, the company achieved a positive operating cash flow of $809k on the back of increased client numbers and activity levels. The robust rally in share markets over the quarter together with the influx of new clients has led to a significant rise in the total securities held on Holder Identification Number (HIN) on the platform.

Moreover, SWF’s project team is working hard with its partner Phillip Capital in order to develop the technology required for the launch of US equity trading in the fourth quarter of this calendar year.


Trade Growth (Source: Company Reports)

Expected Growth in Upcoming Quarter: SWF expects to witness a rise in its investments in growth and new revenue streams in the upcoming quarter.

Key Risks: The company is mainly exposed to cash flow and fair value interest rate risk, which arises from trading cash account deposits held on behalf of its customers and from the guaranteed return rates offered to its customer. To manage this risk, the company works closely with reputable financial institutions to achieve the highest return rates and managing the guaranteed rates offered to the customer. In addition, the company’s business is also sensitive to credit risk, which is influenced by the failure of counterparties on their contractual obligations.

Stock Recommendation: The company closed the June 2020 quarter with a net cash position of $5.26 million and no outstanding debt. Current ratio of the company stood at 2.60x in 1H FY20 as compared to the industry median of 1.38x. This indicates that the company is in a decent position to address its short-term obligations. The stock of SWF has an EV/Sales multiple of 30.1x as compared to the industry median of 4.8x on a trailing twelve months (TTM) basis. The stock of SWF is trading near its 52-week high levels of $0.665. Thus, considering the current trading levels, we have a wait and watch stance on the stock at the current market price of $0.595 per share, down by 9.848% on 8^th July 2020.

 
SWF Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

5G Networks Limited

5GN Details

Acquisition of ColoAU: 5G Networks Limited (ASX: 5GN) provides data network and cloud services. The market capitalisation of the company stood at ~$104.97 Mn as on 8^th July 2020. Recently, the company announced that it has reached an agreement to acquire Colocation Australia (ColoAU) for a consideration of $2.9 million. This strategic investment would allow 5GN to ramp up its indirect sales revenue by enabling partner access to ColoAU’s automated network platform, which would be integrated with the new 5GN Cloud Federation and a growing number of data centres.

In another update, the company announced the extension of the closing date for its share purchase plan (SPP) offer to 17^th July 2020 from 8^th July 2020. The company is likely to raise up to $4 million from the SPP. Previously, the company had also finished a Placement and raised $18.2 million. The company will use the proceeds for the expansion of fibre network in Sydney and Melbourne, and new builds in Brisbane and Adelaide focused on CBD demand and key data centre locations. The proceeds will also be used towards M&A opportunities. During the quarter ended March 2020, the company reported a positive operating cash flow of $1.7 million.

 
Operating Cash Flow (Source: Company Reports)

Future Expectations: The Company possesses a strong sales pipeline and is focused on developing innovative products and services which will expedite customer shift to cloud-based solutions.

Key Risks: The company is mainly exposed to credit risk and liquidity risk. Credit risk arises from exposures to customers and through deposits with financial institutions. In addition, the company is required to monitor forecasted cash flows and to maintain adequate unutilised borrowing facilities in order to manage liquidity risk. Moreover, the company’s business is also sensitive to interest rate risks.

Stock Recommendation: At the end of March 2020 quarter, the company reported a cash balance of $4.2 million. The stock of 5GN has moved up by 34.44% and 59.21% in the last three and six months, respectively. The stock is trading close to a 52-week high of $1.640. Also, the stock is trading at a price to book value multiple of 6.4x against the industry median of 2.9x on trailing twelve months (TTM) basis. Therefore, considering the current trading levels along with the movement in stock price during past few months, we have a wait and watch stance on the stock at the current market price of $1.285 per share, up by 6.198% on 8^th July 2020.


5GN Daily Technical Chart (Source: Refinitiv, Thomson Reuters)

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