Consensus community valuation
$0.850
Average Intrinsic Value
61.6%
Undervalued by
Active Member Straws
#Substantial Holders
Last edited 6 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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#Competitors
Added 4 months ago

Found this little chestnut when reading about the new kid on the block Superhero, offering '$5' flat fees, it turns out if you don't pay a $9 per month fee (billed annually), you can't even place limit orders... (i.e. you cannot say I want to buy/sell a stock at $1.05, you have to buy at whatever the current market price is)

Good luck appealing to high volume traders guys!

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#Bull Case
Added 4 months ago

Outstanding annual results (many of the threads have already gone into depth) and I personally believe that we will see a large move in shareprice when US investing is officially released. 

Sticky Platform - I am a user of Selfwealth myself - I have also explored brokers such as CMC and Commsec and find Selfwealth the cheapest and easiest to use. The fresher looking app (which is set to get an upgrade this year) and easy to use platform makes it quite appealing for millennial investors (disclaimer: myself) to use. 

Any consumers that have started on the platform due to the lower fees are going to stay when US investing is released and any that are converted over by the new cheap US investing may consider moving across other holdings due to the set fees.  
 

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#SWF Notes
Added 5 months 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 5 months 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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#ASX Announcements
Added 5 months 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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#Business Model/Strategy
Last edited 4 months ago

I had a chat with the MD a couple of days after the Annual Report came out. 

https://medicalmoney.com/episode30/

Obviously since then SuperHero has been released

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#Q2 FY21 Update
Added 2 weeks ago

SWF Quarterly Activities Reports:

Highlights
• Record quarterly operating revenue of $4.46m, up 298% YOY.
• US trading launched on schedule on December 14th, adding a rapidly growing new revenue stream.
• Number of active traders 67,394 at end December. Up 17% for the quarter and 208% YOY.
• Quarterly trade volume up 377% YOY.
• Value of client cash held and value of securities held on HIN continue to grow strongly.
• Operating costs on clearing down from January 2021, producing higher gross profit margins.
• Quarterly cash flow from operating activities, -$29k in a heavy investment quarter.

 

Disc: I hold

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##thoughts
Added 3 months ago

SelfWealth seems to be an attractive stock for many investors, including myself. With the company having two consecutive positive cashflow quarters and an increase in active traders during these periods, the organisation seems poised to keep gaining market share. With their new app and access to the US market coming in December this should only add value to the company. I believe this is where the share price will rapidly grow, and more uses will jump on board. One to watch in the coming months.

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#q1 2021 Update
Added 4 months ago

Solid results for Q1, with key takeaways:

1) Active traders up around 11k to 57k traders ovre quarter. 

2) Revenue of $4.37 M, up around 5% on prior quarter.  

3) Cash held now $49 M, up 12% on prior quarter.  

4) Record trades for the month of September @ 137k trades. 

5) Selfwealth have 6% market share of online investors, up from 4% in December 2019.  

6) US trading platorm development is on track, as is new mobile UI for Q2 2021.  

Overall a solid result, noting the first half of the financial year has historically been the weakest half for Selfwealth with respect to growth.   Over H1 2019, SWF grew quarterly revenue <5%, & over H1 2020 SWF grew quarterly revenue <20%.  In contrast, over H2 2019, SWF grew quarterly revenue >45%, and over H2 2020, SWF grew quarterly revenue >200%.   

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#Search Trends - Competitors
Added 4 months ago

In regards to OpenTrader, while they do have a much better approach to ownership and HIN's (and also have reasonably priced option trading over IG) they have a scalable brokerage model (attached). Might be good for micro day traders but other than this I think SWF comes out on top once again.

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#ASX Announcements
Added 2 weeks ago

viharerda provided the Q2 update as summarised by management, but I wanted to add a bit of flavor. Reading through the update a number of other facts stood out to me so here is the non-summary summary:

Overall I was a bit disappointed in the low revenue growth QoQ (1.2%) but I wasn't overly surprised. Last year Q2 was up 4.2% on Q1 then they acheived 42 and 37% growth in the following quarters. It's also worth considering there was a 5% drop in overall ASX trades QoQ (and 7% drop on pcp), Q2 has seasonally the lowest trades. Active traders were up 17%.

International Trading: although it was introduced December 14, the 2 income streams from international trading (foreign exchange (FX) margin and a brokerage fee) are both "received monthly in arrears" so Q2 included no revenue from international trading. Q3 will include the relevant Dec, Jan & Feb income. They are also adding additional order types, stock research reports and other US trading functionality during the March quarter, which is expected to be profitable for US trading. The MD commented "The launch of US trading is now complete with an encouraging take up by existing clients and quickly growing trade volumes."

Profitability: they had a $29k operating loss after a $344k profit last quarter. A new, cheaper contract for settlement, execution and clearing services came into effect on January 4th 2021 with OpenMarkets. So that is 2 new revenue streams and lower operating expenses expected next quarter. Q3 and 4 are also historically much stronger quarters, especially the 4th as they offer sales on annual subscriptions including free trades. So I'm expecting 2 relatively very profitable quarters to finish the year.

New app: iOS app will be released early February 2021 with the Android app to follow shortly after. This was originally scheduled for December so is behind schedule, looking forward to seeing how significant of an improvement this is on the current UI and the impact it has on customer acquisition. Pleasingly they are expensing the R&D costs associated with developing the new app.

Marketing: they increased spend during the quarter and plan to continue this increased spend (from $162k Q1 to $261k Q2, 60% increase). This is only 6% of revenue Vs 64% for product manufacturing and operating costs. I think increasing marketing from here is a good move and hope to see more. They have waited until they have international trading and the improved UI of the new apps could result in higher ROI from marketing as well. I've been seeing a lot of adds for their competitors lately, and think the entry of a couple cheaper competitors is likely why the share price has been struggling. Selfwealth have a differentiated offering though with order functionality similar to Commsec and international trading, and I believe clients moving from more expensive platforms is their biggest market opportunity. Considering their blistering growth in active traders so far has been acheived with very minimal sales and marketing spend there could be more higher growth available to them in the future.

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#US Market Launch
Added a month ago

Selfwealth launched US trading platform this week. Key takeaways:

  1. 7000 US account applications in the first 9 days. Remember, Selfwealth have been onboarding 1000 active accounts per week this year.
  2. New account registrations increased since US platform launch.

Alexa webpage rankings correlate with reported increase in new account registrations. With ranking up 6k places since October. Two issues to note:

  1. Selfwealth pay ETF costs this quarter, so costs should spike this quarter.
  2. Trading is seasonally quieter in Q2.

DISC: HELD.

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#Quarterly ASX Announcement
Added 4 months ago

Valuation updated to reflect Q1 FY21 result. Notes:

Despite a modest QoQ revenue growth of 4.5% I think it is important to look at this figure Vs their underlying driver of revenue which is currently ASX trade frequency. As per page 3 of their update, ASX daily trades were down from ~1.8m to ~1.5m so it was always going to be a difficult quarter to grow revenues, however SelfWealth daily trades increased, helped by a 24% increase in active traders

Note that lowest Q3 & Q4 QoQ growth has been 41.8% and 37% respectively, not sure what has caused significantly higher growth historically in these quarters (apart from covid in most recent year, with 74% and 101% growth respectively) however I expect international trading and new apps to provide a similar boost. 

Still expecting YoY revenue growth ~200%, growing gross margin and profitability, growing share of big market opportunity.

Some may think their user and trade volume growth has been elevated by a one off covid related boost, I disagree:
-they have grown revenue QoQ 13 quarters in a row. 
-they are building momentum with early adopters, 
-they have US trading and new iOS and android apps pending both within 3 months 
-In Q1FY21 they grew trade volume and quantity despite these declining overall for the ASX i.e. they grew their market share ~30%

They are clearly listening to their users, who are growingly becoming investors in SelfWealth (can't get much stickier than that). As they gain market cap more investors will notice them, research them and make the decision to switch to a cheaper broker, I think their share market success could make great free product marketing. 

Biggest risk is competition, I think the new app and US trading will assist in getting majority of new traders as well as being ASX listed, however they have no moat and are already being undercut with $8 trading offered by ThinkMarkets, so only time will tell. Will need to keep an eye on quarterly new traders, liking the 11,370 new traders added in Q1

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#Search Trends - Competitors
Added 4 months ago

I just wanted to shed some light on the 'competitor' Superhero that is offering $5 flat fees.

The biggest and most glaring issue here is that you do not have your own HIN here and they are technically but not usefully CHESS sponsored. 'littleko' has a great summary of this on r/ausfinance:
"Note that the way they are achieving these low fees is through consolidation of stocks under a single HIN. This means that you don’t have your own HIN.

It’s unclear what this really means about them being CHESS sponsored. Their FAQs suggest the shares are CHESS but they also say you can’t transfer held shares in and out like you normally could through standard CHESS broker"

While I advocate each to their own, I am not dealing with a broker where I do not have absolute ownership and management of the securities I want to hold and trade. SelfWealth have transparent, user friendly and complete ownership focus when it comes to CHESS and HIN owndership of securities.

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#Quarterly ASX Announcement
Added 4 months ago

It seems that SelfWealth is here to stay. Rather then being a one pump chump and falling over after the explosive growth in CYQ1 and Q2 of this year, SelfWealth has had a record quarterly trade volume, record quarterly operating revenue and record monthly trade volume in September.

They have also added 11,300 active traders for the quarter (more then they did in CYQ1 of this year!) IIt is important to know that the profit margin on trades is quite small but their investment in US Equity trading (for $9.5 USD flat fee) will add a significiant revenue stream for the business. Importantly, 'client cash held' where the business receives interest on theses funds, has increased to a record $409m over the quarter.

Rob Edgley has confirmed that even among the heavy investment in new mobile applications and US equity trading, the business has had its second cash flow positive quarter.

There are a lot of oppotunities for SelfWealth here, seeing strong organic growth here before they have even added their new refined app and US trading makes me very confident in their potential. They have a number of new competitiors however their first mover advantage coupled with their community engagement, cost effectiveness and fantastic support means they have created a fantastic foundation to grow from.

Further headlines below:

  • Record quarterly trade volume of 379k trades.
  • Record monthly trade volume in September of 136k trades.
  • Record quarterly operating revenue of $4.37m.
  • Second consecutive quarterly positive cash flow from operating activities, $344k.
  • Number of active traders reaches 57,816 at end September. Up 11,371 active traders for the quarter.
  • Value of ‘client cash held’ increased over the quarter to $409m.
  • US equity trading on track to launch during December quarter.
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#Competitors
Added 4 months ago

Everyone mentions Superhero as it's  a fairly new kid on the block.
Has anyone looked into OpenTrader as a potential competitor? https://opentrader.com.au/

  • Own your shares - CHESS sponsored through OpenMarkets
  • Practice trading for free with a paper-trading simulation account
  • Brokerage from $5 - Australia's most competitive rate
  • Proprietary technology
  • Security and stability of an ASX Trading & Settlement Participant

It obviously doesn't have the social aspect of trading as seen on SWF. 

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#Competitors
Added 4 months ago

Just documenting a new trading platform competitor as I don't think it's been noted here. Superhero offer $5 trades and have a mobile app inspired by Robinhood. 

One thing that strikes me as hard to understand is their pricing model and value proposition - the two tiers don't make things feel simple.

Here's a write up from Rask Media a few weeks back:
https://www.raskmedia.com.au/2020/09/08/why-the-selfwealth-asxswf-share-price-fell-7-on-monday/

My sentiment echoes that of the article to see how things play out. In the short term, I'm keen to give this new platform a go.

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