Consensus community valuation
$0.765
Average Intrinsic Value
25.7%
Undervalued by
Active Member Straws
#Bull Case
Last edited 6 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 4 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 5 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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#Competitors
Added 2 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 2 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 3 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 3 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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#Bull Case
Last edited 4 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 3 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 2 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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#SWF Notes
Added 5 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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##thoughts
Added a month 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 2 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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#ASX Announcements
Last edited 5 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 5 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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#Search Trends - Competitors
Added 2 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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#Bull Case
Last edited 5 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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#Quarterly ASX Announcement
Added 2 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 2 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 2 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 2 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 2 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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#ASX Announcements
Last edited 4 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 6 months ago

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

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