It’s been a while since a SGX IPO caught my eye as most SGX IPOs are, honestly, pretty boring (Yet another REIT IPO anybody? No?) So when you hear of a fintech company filing to list here (which is pretty rare), you just gotta dive into it.
Here’s An Unbalanced View of Ayondo Ltd.
Ayon-who?
Ayondo Ltd is a fintech company headquartered in Germany. It is looking to float 80.77 million shares on the Catalist board, of which 8.9 million are available for public subscription. This represents roughly 16% of total shares in the company after the IPO closes. The IPO price is $0.26, which translates roughly to a $130.7 million market cap. Offer will close on 22 March and begin trading at 26 March.
They operate a trading platform that allows you to trade Contracts For Difference (CFDs) and spread betting on all kinds of underlying instruments (stocks, bonds, currencies, even cryptocurrencies). This on its own is nothing new. The interesting twist is the social trading aspect that is introduced on the platform.
Social trading is such that “Top Traders” can put themselves out there to be followed by other amateur / lazy / ignorant investors. Essentially what happens is that once you follow a Top Trader, your money will automatically be used to mimic the trades the Top Trader does, a bit like letting a fund manager manage your funds.
Top Traders’ past performance is used to determine their “Career rank” and there are tiered remuneration percentages for the corresponding rank. This essentially means you take a cut on the platform fees charged by Ayondo to your followers. This essentially democratises the fund management process by allowing anybody to be a fund manager. Interestingly, Top Traders have the option of just doing simulated trading (ie no personal money is involved) and build their Career rank that way.
Why I won’t be subscribing to this IPO
Still Loss Making and Premium Valuation
The company has yet to turn a profit in the past 3 years. Although revenue has been increasing, operating expense growth has also been outpacing revenue growth. Interestingly, revenue actually dropped in 2017 despite user growth. The company is also still not cashflow positive with financing activities funding the company’s growth.
Also, the IPO price of $0.26 cents is at a significant premium from audited NAV of $0.029, which already includes goodwill from acquisitions of its subsidiaries as part of its assets. Goodwill is subject to potential impairments, meaning NAV might be even lower.
As a result, it is difficult to value based on future cashflows or based on NAV.
Competitive industry
The brokerage industry is highly competitive and cut throat. Page 175 of the prospectus already provides a formidable and aggressive list of competitors, namely:
- Social trading competitors like eToro (Those annoying youtube ads) and Sprinklebit
- Self directed trading competitors like CMC Markets, IG and Saxo Bank.
As such, there is no guarantee that Ayondo will win and prosper in this crowded market.
I also don’t see any reason why social trading cannot be implemented on all competitor platforms which in turn leads to further erosion of your one differentiator from your competition.
Private equity deal
Significant pre-IPO investor Luminor Capital is a private equity firm that is probably using the IPO as a way to cash out of the company. The lock-up period on their shares range from 6 – 12 months, meaning they can sell a significant portion of their shares 6 – 12 months after the IPO. They may or may not do so, but my bet is that they would sell, thus creating significant downward pressure on the stock in the near term.
Non-conversion of Shareholder loans
Proceeds are from the IPO is being using to pay off significant amounts of shareholder convertible debt, which are held by significant shareholders like the founder. If they were so convinced of the share value, they would have converted those loans into shares without hesitation.
Conclusion
The Ayondo Ltd IPO is a rare fintech listing in Singapore. However, in its current state, it is definitely not a viable long term investment. If I were to subscribe to the IPO, I would be there only for the potential pop on Day 1 due to scarcity value. I’ll be giving it a pass for now.
Happy Hunting,
KK
The “An Unbalanced View” series gives my reasons why I am or am not investing in an IPO. There might be contrasting factors that I did not highlight in my post. It is not that I didn’t consider them before making my decision, it is more likely that the reasons presented overwhelmed those factors and thus were not presented. Bear in mind that it is after all, an unbalanced view.