27-Nov-2020:  Taylor Collison: Raiz Invest (RZI): Early Replication of Australian Successes into SE Asia

No analyst listed.  Release Authorised by Mark Pittman, http://www.taylorcollison.com.au

• Recommendation: Spec Buy
• Market Capitalisation: $70.5M
• Share price: $0.94
• No Target Price given
• 52 week low: $0.30
• 52 week high: $0.99

Raiz Invest Limited (RZI)

Early Replication of Australian Successes into SE Asia

Our View

RZI’s future success hinges on continuing growth in active customer numbers, increasing funds under management, further leveraging its installed Australian customer base, and delivering on its early stage SE Asia growth opportunities. At this early juncture, RZI remains a pre-profit venture capital style investment – with associated (and expected) risks – but its FY20 result and recent AGM update both encouragingly displayed continuing positive momentum.

To the end of October, active user growth (yoy) was +43.8% and total FUM +27.9%. Progress is clearly being made and achieving these growth rates in a COVID impacted, uncertain consumer environment, is commendable. But the challenge is to improve customer engagement and gain greater share of customer wallet. The size of the opportunity is large, and combined with an $11.8m net cash position (30 June 2020; $5m held in regulatory capital) and Australian operations verging on cash flow breakeven, we remain positive, rating RZI a Speculative Buy.

Key Points

Growing out of its infancy – We stress that investors need be cognisant of both the opportunities and growing pains of an early stage funds platform business. RZI must successfully navigate its high growth phase, and we note:

• SE Asian’s expansion into Indonesia and Malaysia has shown promising initial sign up numbers. RZI needs to monetise that initial interest. Encouragingly growth rates continued unhindered post June/July’s fee introduction.
• Australian active users were up 10.6% in the year to end Oct 2020, an average month on month uptick of just 0.8%. Acknowledging COVID and SE Asian distractions, Australia’s plateauing user numbers need bolstered through marketing, new user sources, and innovative products.
• Australian FUM up 27.9% for the 12 months to end Oct 2020 suggests greater success in convincing active users to increase contributions onto its platform. Positive user experiences and outperformance in its chosen ETFs are helping.
• The broader funds platform industry is competitive and alternate solutions may arrive from overseas. Positively, the technology on which RZI’s offering is licensed (from Acorns) continues to gain traction in the US, proving its worth.

Australian growth plans – To encourage greater Australian customer saving and investing, RZI intends to launch new products over FY21. More portfolio options and the introduction of new custom portfolios, together with the onboarding of SMSFs are intended to broaden RZI’s offering and appeal to users with larger account balances. With increased users comes increased maintenance fees ($2.50 set fee per user per month) and significantly, with increased FUM comes increased account fees (charged as a percentage of FUM). Traction here is crucial in RZI’s more established Australian business. RZI needs to innovate to grow.

Encouraging initial SE Asian uptake – The initial uptake in both Indonesian and Malaysian active users was a lofty +84.0% and 311.6% respectively on a threemonth basis to end-Oct. The month on month uptake was a still healthy 10.9% and 22.5%. Offices have been established in Jakarta and KL, licensing is in place, teams have been hired, and new partners targeted. These countries are to provide the blueprints for further pushes into Vietnam and Thailand and we watch with interest as these mobile phone prevalent, underbanked, and densely populated countries add to the RZI portfolio.

--- click on the link at the top to access the entire TC report on RZI ---

24-Aug-2020:  Taylor Collison: Raiz Invest (RZI): Initiating coverage – getting in early

Recommendation: Outperform, Valuation: $1.04 (DCF derived).

Our View

We initiate coverage with an Outperform rating. Raiz’s risk/reward is favorable. The business has now almost reached breakeven in terms of cash consumption. The balance sheet is match fit with over $13m cash, FUM (funds under management) is growing, the number of users is growing, fees have been adjusted to be very competitive but reflecting the cost of running the business. Raiz increased maintenance fees in July 2019 and this heavily reduced cash burn and turned the Australian business into operating cash positive.

Growth initiatives are clear and include the current live expansion into South East Asia via Indonesia and Malaysia. The critical investment and approval processes in these markets are done, and these markets are now being activated. Growth can also come from the continued addition of new users within Australia, crossselling financial services to the substantial user base – such a new service such as superannuation and insurance.

Raiz can continue to offer paid for performance marketing of its user base to other online businesses – that both increase FUM and generates additional revenue for Raiz. The average investor’s balance tends to rise over time, and this is helpful in terms of incrementally growing the revenue for the business.

Key Points

Raiz continues to release strong news: -

Recent 4C and FUM

• FUM has increased to over $472m (up 26% pcp) and active users expanded 13% to 223k users (pcp)
• Total revenue increased 65% to $10.3m.
• Importantly - Q4 - 20 saw a cash flow break-even result for the Australian business and a very modest outflow of ($258k) for the group.
• The cash flow results for the business should improve after sunk costs in the Asian market start to shrink and the JV arrangement(s) have been funded by the other parties.
• The business is well funded with the 4C revealing that it had $13m in cash which coupled with improved trading results provides important financial strength.
• The majority of the revenue comes from maintenance fees that are not dependent on FUM and recur and are predictable. Raiz, however, retains FUM leverage with minimal limits ($10k) then triggering a FUM fee.

Valuation

• We have a DCF derived valuation of $1.04 per share. The valuation is also supported by the EV of $239 per customer. The huge customer base is both a material asset and a barrier to entry.

Risk factors

• Risks include financial market performance, government regulation, lack of access to payment and banking system of potential and existing customers, cost of customer acquisitions, loss of key suppliers, data and cybersecurity, loss of key personnel, and irrational competitor activity.

--- click on link at the top for the full Taylor Collison report ---

05-May-2020:  Active Customers & Funds Under Management - April 2020

Raiz Invest CEO George Lucas says: “The rate of net churn in customer numbers stabilised in April 2020 with active (paying) customers increasing by 1.3% to more than 218,000. The better global market conditions saw our FUM increase by 8.9% to $404.62m. But due to the COVID-19 early release of superannuation, $4m was withdrawn from the Raiz Invest Super fund.  The average early release was $7,139. 

“With State and Federal governments starting to lift the social restrictions implemented to contain COVID-19, we will continue to build on these encouraging April numbers as the economy slowly starts to recover. Most of our customers have remained loyal to Raiz during these unprecedented times.  This tells us they understand the benefits that we offer them and gives us confidence we have the right products to continue growing our active customers and FUM in the months ahead.”  

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28-Apr-2020:  RZI - Business Quarterly Update & Appendix 4C - 31 Mar 2020

and Raiz Invest Limited (RZI) - Board Changes

31 MARCH 2020 (Q3 FY2020) QUARTERLY ACTIVITIES REPORT AND APPENDIX 4C

Raiz Invest Limited (‘Raiz’ or RZI), Australia’s largest mobile-first financial services platform, today announced an update for the three months to 31 March 2020 (Q3 FY2020).

In a quarter when COVID-19 has had a dramatic impact on global capital markets and businesses, our priority remains the health and well-being of our staff, customers and the broader community in which we operate. 

The volatility in the capital markets has impacted on the value of funds under management (FUM) as well as the number of active customers, and Raiz has reacted quickly and responsibly to these unprecedented events. 

Decisive steps have been taken to respond to the deterioration in the operating environment including a reduction in global operating expenses, a deferral of non-essential expenditure and optimisation of labour costs. On an annualised basis these cost reduction initiatives amount to ~$1.2m or ~8% of the total cost base.

Although the onset of COVID-19 may require an adjustment in the pace of execution of the growth strategy, the Company has continued to deliver positive momentum in many areas: revenue growth; progress in rolling out new products in Australia; growth in Indonesia; and further progress towards a Malaysian launch.

During the quarter, the Group delivered record normalised revenue from its Micro Investing Platform of $2.2m, representing 118.5% growth on Q3 FY2019 and 9.4% growth on Q2 FY2020.

Pleasingly during the quarter, the number of active (paying) customers increased by 15.3% to 215,398 compared to Q3 FY2019, representing an increase of 1.8% compared to Q2 FY2020. Furthermore, the rate of churn in customer numbers has stabilised during April 2020.

Operating cashflow was a negative $66,000 for the Group in Q3 FY2020.  Operating cashflow was a positive $551,000 for the Australian operation, in Q3 FY2020, which excludes the investment and expenses of the Southeast Asian expansion.  The costs associated with the Southeast Asian expansion were $617,000, in Q3 FY2020, driven by an increase in marketing and development expenses.

The Group remains well funded with cash, cash equivalents and term deposits totalling $11.5m as at 31 March 2020.

Raiz Invest Super grew by 75.2% to $66.25m compared to Q3 FY2019 and by 3.4% compared to Q2 FY2020. This was before the Government’s COVID-19 policy of allowing early release of up to $10,000 of superannuation funds in the 2020 financial year.

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Looks like brilliant growth versus the PCP last year (Q3 FY19), but much more subdued growth vs the previous quarter (Q2 FY20).  It's still growth, but now much slower growth it seems.  They also still have negative cashflow.  Reminds me of SelfWealth (SWF) a couple of years ago.  Funny thing is - RZI rose +24.44% today - and SWF rose +23.53%.  "Risk On" again in FinTechs?  Somebody is piling back in.

[Disclosure:  I do not hold shares in RZI or SWF]