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.
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