You’ll find “value” and “fintech” in the same sentence as often as “Tiffany’s” and “cheap”. Bloated valuations have flooded the market, and with coronavirus forcing tens of millions of people around the world away to work remotely, there is a heightened expectation on technology firms to provide solutions for “the new normal”.
Enter Supply@ME Capital PLC (LSE: SYME). SYME’s model is devilishly simple; it matches capital-providing investors with companies looking for funding. Once partnered up, the company wishing to raise capital sells their existing inventory to a special purpose vehicle (SPV) set up by SYME for the investors to support. The inventory is then sold back to the company over time. A new asset class is created for investors, and businesses in need of cashflow, such as trade or manufacturing, get the liquidity they need to buy more stock or grow their firm. The only complex part of the arrangement is the technology SYME have developed to add security, data analytics and monitoring. But you don’t have to worry about that.
It’s a straightforward play, and should appeal to investors looking for consistent returns and viable prospects during times of uncertainty.
Our analysts forecast 44% YoY net profit growth through 2021; SYME has rode out the coronavirus blip without breaking sweat and added clients, entered two new markets and increased revenue. It has more than doubled its client base in less than a year with 142 client businesses lined up to securitize their inventories. Currently hovering around £0.50, but not for long, a 12-month valuation of £15.50+ is not outrageous on current trajectory.
A fitting peg for the $5 trillion fintech hole
An eye-popping 1000%+ price surge in August 2020 is indicative of where SYME is heading. A market slowdown and a second wave of the virus blunted AIM’s climb, pulling SYME down with it, but a rebound is inevitable as the vaccine news and post-election calmness fuels a recovery.
SYME pairs capital rich investors with businesses needing a boost and is nimble enough to cut across several verticals. It presently has clients within the oil and gas, chemical and aerospace sectors, all of which have been lifted on recent coronavirus news. Client revenue spills over £100 million, and it currently holds an inventory worth more than £1 billion. This could double in the next quarter alone.
With central banks murmuring over perpetually depressed interest rates, traditional lenders pulling back and private equity busy elsewhere, SYME is in pole position to capitalize. The SME Finance Forum Report identifies a $5 trillion gap in 2018 between the financing needs of small- and medium-businesses and investment available. SYME sits ready to ride to the rescue of companies loading up on debt to push through the busy period, with Brexit a key opportunity.
How it works
SYME has created a blockchain-powered platform, delivering security and accuracy of inventory accounting. It is a first in the digital monetization space, and would appeal to potential buyers down the line. The ledger, edit-proof, enables digitization of the inventory, meaning it never has to leave the client company’s warehouse. Stock is logged and tracked through an interface shared between SYME and the client. Anything that moves, is sold, or added, appears on the ledger. The technology gives client and investor peace of mind that any and all transactions are credible and logged indefinitely.
Many blockchain 2.0 projects haven’t made it out of the lab or had funding cut through Q1 and Q2 2020. SYME is already out of the door and running. It works by creating digital certificates of physical inventories, facilitating immediate transfer of funds to the clients. Thus, gone is the requirement to manually transport an inventory, a warehouse full of goods, to the new owners. There are no travel risks, which in the current environment, can only be a good thing.
Digital monetization is a busy space, but most incumbents offer securitized loans and tend to be smaller offerings broken out of parent lenders. SYME carries none of the risk, and is not lending against its own portfolio.
In the last quarter, SYME has announced partnerships in the US and Middle East, and it is the latter which offers the most intriguing prospect. It has signed a deal with a European lender to bring a Shari’a compliant version of its inventory monetization platform to market. Its new partner specializes in launching, marketing and distributing Islamic religious law compliant products for professional and qualified investors in the Gulf, Asia, and beyond. It now has 300 banks, 250 mutual funds, and assets worth $3 trillion at its fingertips
In the US, a strategic agreement with Anthony Brown and The Trade Advisory to launch its inventory monetization platform across several states will go live presently.
Moving from Italy to the UK paid off immediately; aside from the pools of liquidity and business network of one of the world’s largest financial hubs, the start-up friendly City of London is expected to make post-Brexit tax cuts and offer itself as a bastion of free-trade, with both US and Asian agreements being worked up.
Our investment thinking
At £0.30, SYME is a steal. At £2.30, SYME is a steal, at £12.30, you’ll still find value. SYME could be in the £15-08 region within 12 months; more businesses than ever need cash, and investors are finding little of note in tech stocks to get them excited.