Consensus community valuation
$0.680
Average Intrinsic Value
5.6%
Undervalued by
Active Member Straws
#Bull Case
Last edited 3 months ago

SelfWealth is by far the biggest position in my personal portfolio. It was also the first trade I put on Strawman where I allocated the maximum. I decided to trim it back on here because I have been tweeting to death about it non-stop for months and people are probably sick of hearing about it. That being said, here is why SWF is still my best and highest conviction idea.

SWF experienced a sudden spike in growth in Jan/Feb which had been made public via The ASX, They raised money at 0.14 and were trading at 0.16. Then when Covid panic hit, the shares were sold off hard along with everything else. But they shouldn’t have been. Over 50% of SWF gross revenue comes from trade volumes. The ASX volume had exploded as people panic sold all their positions in March. Those that sold their positions also left a large portion of the funds from those sales sitting in their Selfwealth cash accounts. The net interest margin on those cash accounts is the other main component of SWF revenue.

It was the perfect storm, a spike in growth combined with a huge surge in trade volumes and cash accounts. I was buying heavily at 0.10 and accumulated a position far beyond my rule/guideline for maximum position size, as was my conviction.

With SWF now trading closer to 30c it is a different proposition, but not necessarily a less attractive one. SWF now finds itself much less under the radar than a few months ago (For example it is now in the top 20 on Strawman) it has attracted recent buying from Funds and liquidity is picking up. 

At this point in time in would be naïve and arrogant of me to assume that I know more that all the current buyers and sellers combined and that I can do a better job determining what the price should be. In fact, I think it is mistake to try and precisely value any company experiencing this sort of rapid growth. With improved liquidity and interest the market price should be given much more weight now and treated as a more reliable benchmark. 

At this juncture I am instead using a different method to determine whether I think it is good value here. It is a method that I used very successfully when sports betting into liquid markets. That is, take the current market price as your most accurate base assumption, then handicap that price based on specific pockets of information that you believe the market is misunderstanding. 

There is currently a narrative among many, that the last quarter was just a Covid related spike and that things are now normalising. It is true that ASX volumes have returned to more normal levels, but what hasn’t slowed down is SelfWealth new clients signing up. Trade volumes are in a large part a derivative of the total client numbers.

I am currently tracking many metrics and data points that suggest growth in new traders this quarter will be huge. I assume the funds trying to get set around this 30c level are not silly and will also be expecting solid growth, but I think they are underestimating just how much. I think the next 4c will blow the expectations away of those currently paying 30c and that those same people will be happy to pay much higher prices.


The Longer-Term Outlook: 

 There are a couple of interesting self-fulfilling prophecies playing out positively for SWF at the moment.

1.     SWF is in a unique position where it almost doesnt matter what the market does from here. If we contiue this melt up in markets Then the SWF share price will continue to get dragged higher like every other stock. If we experience another wave of covid or a different shock that causes a spike in volatility like in March, then trade volumes would increase again and Selfwealth would begin making even more money.

2.     I  recently took a look at the broke data for SWF and found the number one buyer was Open markets (who execute Selfwealth orders). In other words, Selfwealth customers are buying SWF shares. Your first thought may be “great” retail buying is a negative sign. On the contrary. We already know that funds are trying to get set. They are beginning to pop up on the register and if you follow the orderbook flow you would notice some of the ~300k line wipes in recent times, which is a sure foot print of big buyers. 

But Selfwealth customers buying the stock is a phenomenon that adds fuel to this fire. You have a company that is currently growing new users at an insane rate of 50%+ every 3 months. Not only are these new users blowing up the company's revenues, but with every new customer you now have a potentially new and likely buyer of the stock. 

3.     Momentum and trend traders are a very different breed to your typical investor. They are not interested in the fundamentals of the company rather just the direction of the share price and that the volume backs it up. But SWF has had a big run, wouldn’t momentum traders be in there already? Sure, some would be, but the SWF run up happened quickly in just a few months, so it would not be on everyone’s radar yet. Also, the company market cap and liquidity were low which would have discouraged many.

The main point to make however is that unlike many investors, momentum traders do not suffer from an anchoring bias. They don’t care that the price is higher than where they could have once bought it, in fact they relish that as a good sign and a buy signal.

Funds, retail buyers and SelfWealth customers will continue to buy, putting a floor under the price, while momentum traders will continue to flock to the stock as it pushes higher. 

4.     A common theme that seems to be of concern to many is that a big player with deep pockets will come in and start a price war with SelfWealth. Perhaps someone that can afford to run a trading platform at a loss in order to leverage other more profitable financial products to clients. In my experience these types of companies don’t really want to get their hands dirty. They are unlikely to go to all the effort to try and wrestle market share from Selfwealth. This could take years and a much more attractive option would be to just make a take-over bid and begin leveraging their other products immediately.

In other words Selfwealth is on route to becoming a very tasty takeover proposition.

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#Substantial Holders
Last edited 2 months ago

SWF founder Andrew Ward announced this morning that he has sold down ~40% of his holding to institutional investors. As you would expect the market had a nervous reaction with clear selling pressure.

If I am in a small position or am trading a stock more on momentum and see a founder sell down, then with only that one piece of information, I too would be incline to consider wheter I want to keep the position.


SWF is a large position for me and as a result I am following it very closely, tracking all their metrics and reading everything posted about them. This seems to be one of the worst kept secrets getting around. 

Last week people on a variety of Stock forums were posting they had heard from brokers that Ward was selling. As you do when you read speculative posts from those you don’t know, you should either disregard it or take it with a large grain of salt and that is what I did. 

However, it turns out they were right. So now I am more interested in what they had to say. They were suggesting Ward was selling and the buyers were a small group of parties that included some of Aussies top small cap funds.

Andrew Ward ceased to be Managing director a few months ago. I see two likely scenarios here. He either stepped down of his own accord for personal reasons or he was forced to step down. In either of those two cases, I would expect him to want to divest some of his net wealth out of SWF shares given he will have less to do with the business. As a result, I am not that surprised by today’s announcement.

These founder selldowns are typically done at a discount to entice funds to participate. This one was not; it appears it was actually at a slight premium of ~56c. 

I have read posts on twitter this morning suggesting it is not a good look for him to sell straight after good news. The Open Market contract announcement last week was on the 24th, this founder sale was conducted before that on the 22nd. 

It is highly unlikely that a group of funds got their full fill from just a $4.5 million sale. Now this morning they are able to buy it at a cheaper price on market and on top of that, after an additional positive contact announcement has been made. So, I expect them to be soaking up shares here.


I am much less interested in today’s substantial holding notice and much more interested in the ones coming in the future to see exactly which funds have been buying. I am sitting tight through this selling pressure this morning and If the share price fell too far below that 0.56 sale price, I would consider picking up some more.

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#Another Blowout
Added 2 months ago

With negative real interest rates (interest rate - inflation), investors are switching to riskier assets like never before. Selfwealth appears to be possibly the most direct beneficiary of this once in a generation phenomina.  

I say it is once in a generation because, investors have never experienced a time in their lives where real  interest rates are negative, and are searching for reasonable returns in riskier assets.  

Here are the takeaways. I think you will agree these numbers are rare to see indeed:

1) Revenue up 101% over three months.

2) Active traders up 44% over three months. 

3) Cashflow inflection point, with cashflow now running at +20% of receipts. Its maiden positive cashflow result. 

We are heading into unprecedented and volitile times.   Investing will be more challenging than ever, however, it is clear Selfwealth is one of the greatest ASX beneficiaries of the times.  

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#SWF Notes
Added 3 weeks ago

Been investing on the swf platform for last year,and following company hoping they would not go broke.

After listening to following podcast I started building my SWF position.

I expect volatility but thats ok, think they will do great things. Revenue will climb and so will share price.

 www.medicalmoney.com/episode30Today's Guest Robert EdgeleyManaging DirectorSelfWealth (ASX:SWF)www.selfwealth.com.au
 

My rough notes from podcast:


Disruptive company- online broker

Revenue sources
9.5 - 5 open markets
Net interest margin on funds in holdings account 
SelfEtf  $100m seed from supporter
Subscription $20/month for full access.(I pay it and i dont waste cash.)


Selfwealth advisor portal  they charge $9.5 per $70k

1000 new cutomers per week

Active users = cash or stock moved in.

20000- 50000 in 6 months.

Trades/month jan 33000, 134k june

Cashflow positive after 7years.

Market 1million accounts.

Lots of future improvements:
1. International trading November Phillip’s capital via a usa account
2. Mobile app remake November 

3. ...

23 employees. 

International trading $9.5us

Foreign exchange 60basis points

US dollar account so dont have to convert currences every trade.

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#FY2020 - Results Trading Updat
Added 4 weeks ago

Selfwealth Full ear Presenation included the following update: 

1) Active traders exceeded 50 000 in July.  This represents at least 7.7% growth over the month of July.  Confirms growth in new members is continuing apace. 

2) Cash balance exceeded $400 m fo rthe first time in August.  This represents 9% growth over a 7 week period.  

3) US trading to launch between October and December - Only weeks away. 

4) Continued improvements to the product, including live-pricing, independent research, & access to IPOs.   

Item 4 above shows management's focus on solving customer problems and building a loyal customer base, and a great product in the process.   

This update increases my confidence that revenue will exceed $22M this year. 

DISC - I hold.   

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#Bull Case
Last edited 2 months ago

To all those who were saying SWF will get hurt when Robin Hood come to Australia and undercut them. Robinhood just pulled out of their long planned UK launch indefinitely and have put all global expansion plans on hold to focus solely on US markets.

A rather bullish development for Selfwealth.


 

An update on Robinhood UK

Hi there,

We’re saddened to share that we’ve made the difficult decision to postpone our UK launch indefinitely. We'll be closing our waitlist and taking down our UK website shortly. 

The world has changed a lot over the past several months and we’re adapting with it. On a company level, we’ve come to recognise that our efforts are currently best spent on strengthening our core business in the US and making further investments in our foundational systems. 

Since we announced our intent to launch in the UK, we’ve been fueled by your excitement for Robinhood and humbled by your response. We’re sorry that we cannot deliver the product we promised you this year. 

Although our global expansion plans are on hold for now, we will continue our work to democratise finance for all and we look forward to the day when we can bring this mission to the UK. 

Sincerely,
The Robinhood UK Team 

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#ASX Announcements
Added 4 weeks ago

SelfWealth have blown the doors of in their trader growth and revenue increase for the year. July trades and revenue are reported to have given them their 2nd best month ever. I am keen to see how their cost base adapts moving forward now they are free cash flow positive (of around $9m if I rememeber correctly).

  • Revenue up 313% to $8.6m
  • Total trades up 299% to 659,131
  • Increase in active traders of 235% to 46,445
  • $2.5bn of total assets on HIN up 124%

Good to see some comentary about looking forward and insight into US equity trading later this year. If they continue to win market share and increase profitability this is a very exciting company.

Full report here: https://www.asx.com.au/asxpdf/20200821/pdf/44lr0z2gcbw8fc.pdf

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#SWF Notes
Added 2 months ago

From the last update the increase in customers loading onto Selfweaths platform is a sign that the structural shift onto the online low cost broking environment is continuing strongly. This will drive up revenue for SWF and given it has now achieved some sort of scale as indicated by being cash flow positive from its last update it is well positioned to have any revenue made from further customers fall to the bottom line. Albeit they did say they were going to spend a little to better their platform, but I think this willl be more than compensated as the land grab of customers continues.

There was talk of competition from overseas players with the mention of ‘Zero-brokerage’ players, but from extensive research it is believed that the Australian market environment would not support these models, so the risk from these are minimal for now.

The growth opportunity for SWF in the current environment is favourable and should continue to grow.

 

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#ASX Announcements
Last edited 2 months ago

Q4 Results: http://investors.selfwealth.com.au/DownloadFile.axd?file=/Report/ComNews/20200706/02251723.pdf

Headlines:

  • Continued growth in ‘active traders’ joining the platform. Up 44% quarter-on-quarter, to 46,445.
  • Operating Revenue of $4.18m. Up 101% quarter-on-quarter.
  • First ever quarterly positive cash flow from operating activities, $809k.
  • Quarterly trade volumes reach 340k. Up 112% quarter-on-quarter.
  • Value of ‘client cash held’ remains firm at $366m.

There was discussion around SelfWealth hitting $1m Positive Cash Flow however I thought this was quite eye watering to begin with, however I think $800k is the next best thing. It will be interesting to see how Management use their Capital to reinvest and grow SelfWealth as they are branching into US Equities in later CY20.

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#Bull Case
Added 3 months ago

So after a short period where volume dropped off and we were treading water, Volume was back today and the Share price took off +16.5%.

Observing the order flow today and this was real buying, Offers were being chewed up all day at 38c and then closed on the high of the day at 39c. This was the footprint of a fund buying or at worst a very serious individual.

This is looking great here and thats with a bumper report still to come!

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#Bull Case - Fund Manager
Added 4 months ago

Datt Capital became as significant shareholder late last month, and have provided their theis in theis blog:https://www.datt.com.au/blog/a-high-growth-opportunity-in-volatile-times

Their forecasts are very optimistic, I don't Can't come up with earnings anywwhere near their estimate.  

But if they want to pump the stock, it is OK by me........

DISC: I hold

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#Bull Case
Last edited 3 months ago

An update on Self Wealth's site engagement*, as mentioned in my valuaton they were the #87,000 most popular enagaged site in Feburary and they are now are at #34,500~ at mid June.

My opinon on this statistic is greater use of its platform, greater exposure to new and prospective traders which translates into a higher number of accounts and extrapolating from this, higher revenue and interest on account funds.

*Please note that the way Alexa gets to this number is not fully available to the public an is a blend of time spent on site as well as how much unique new traffic is visiting the site. They are quite reliable in their metrics (in my use with them in the past however please take every statistic that you cannot view the data for with a pinch of salt.

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#Q3 2020 Update - Blowout Quart
Added 6 months ago

Selfwealth report remarkable numbers for Q3.  

  • Revenue for the quarter excedds $2 million, 74% on Q2!
  • Cash burn reduced to 70k for the quarter, down from $535k.
  • Cash held increasaed by 164% ove rthe quarter to $359 million
  • Teade volumes up 103% on previous quarter. 
  • 10 420 new customers joined the platform over the quarter. A 49% increase over the quarter!   
  • Gross margin expansion over the quarter as the business scals. 

Targeting the launch of the international trading platform late 2020.  

All signs pint to selfwealth having crossed the chasm, and is beignning to scale.   

 

 

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#Substantial Holders
Added 4 months ago

30 April 20: Datt Capital became a substantial holder holding 6.37% [12.37m] at around $0.21.  They put out a research note outlining their thesis.  This is a positive recognition of the company.

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#ASX Announcements
Last edited 2 months ago

As part of my and other member's valuations, economies of scale have been called out to equip SelfWealth with bargining power in new and ongoing contract negotiations. While the details will remaining confidential, SelfWealth has signed a 3 year deal with OpenMarkets that will hinge on this new found scale and bargaining ability. I believe this validates the thesis and coupled with the increasing trade volumes and active traders we will continue to see SWF grow in this new Retail trading world.

Full Announcement here: https://www.asx.com.au/asxpdf/20200724/pdf/44kstd4clvyc0f.pdf

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##morgans#1seller
Added 3 months ago

No view on this stock either way. I just notice heaps own/follow.

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#March Update
Added 6 months ago

6 Mar 20: 2,581 new active traders. 

11% growth in overall active traders and 51.3% growth in monthly acquisition rate. 

Cash balances of 26,000+ active traders grew to $217.22m at the end of Feb, up 33.3% MOM. 

Feb finished with 42,396 trades up 28.7% on record breaking January.

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#Director Transactions
Added 6 months ago

17 Mar 20: Lally +71,428 @ $0.14 [729,596] +$10,000

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