A newcomer to the online broking market, SelfWealth, hopes to build its market share with a low flat-fee brokerage rate and a premium service that gives clients sophisticated analytical tools.
The company launched its trading platform last year and now it has launched an initial public offering, seeking to raise up to $7.5 million, with an offer of 37.5 million shares at 20 cents a share.
At listing the company will have a market capitalisation between $23.5 million and $26 million. The offer closes on November 15.
SelfWealth clients trade on the Australian Securities Exchange for $9.50 a trade, regardless of the trade size. The company uses Thomson Reuters as a supplier of industry news, research and valuation metrics.
The company also has a subscription-based premium service, based on an innovative peer-to-peer portfolio construction functionality, which allows clients to compare their portfolio performance against that of other clients (on a de-identified basis). The premium service subscription charge is $20 a month.
The premium service includes a feature called SafetyRating, which measures the level of portfolio diversification, and another called WealthCheck Score, which benchmarks performance against the client base.
“Clients can see how other clients with a similar stated risk profile are investing and what returns they are achieving,” according to the company’s prospectus. The company is keen to pitch itself as a fintech disruptor.
The founder and managing director is Andrew Ward. Prior to founding SelfWealth, he was an executive manager at Commonwealth Private.
To date, SelfWealth has attracted 1500 clients, with trading volume of around two trades per client per month. At the end of August SelfWealth clients had $196 million in stock holdings and $20 million in cash accounts.
Based on recent industry research, the company has reasonable prospects of being able to grow its client base. According to Investment Trends, 635,000 unique individuals placed at least one share trade in the 12 months to May, up from 605,000 in its previous survey six months earlier.
However, while the market is growing investors do not have a high propensity to switch brokers. Investment Trends found that satisfaction levels were high, at 85 per cent – up from 83 per cent six months previously.
Only 4 per cent of investors reported that they had switched online brokers in the past 12 months (up from 3 per cent in the previous survey). Switching activity was more common amongst frequent traders, at 6 per cent.
“Among eight markets studied, Australia ranks among the lowest for switching activity,” Investment Trends says.
According to the prospectus, the funds raised from the IPO will be used to continue the development of the SelfWealth platform and bulk up marketing activities.
SelfWealth is also pursuing business partnerships. It has a seven-year distribution agreement with BGL Corporate Solutions, an SMSF software provider to accountants and administrators. The agreement enables BGL’s SMSF clients to gain access to SelfWealth Premium.
The company reported revenue of $121,000 in 2015/16 and operating expenses of $2.6 million. In the year to June it reported revenue of $137,000 and operating expenses of $3.4 million.
For the year to June, the company lost $3.2 million and had negative cash from operations of $2.4 million. According to the accounts, the company is reliant on external sources of funding to meet its working capital requirements until its product offerings start generating significant revenues.
“In the event that SelfWealth is not able to raise further capital to support its ongoing operations or their products do not generate sufficient revenues, there is material uncertainty as to whether it will be able to continue as a going concern,” the company says.
SelfWealth holds an Australian Financial Services Licence. Currently, Powerwrap supplies its “trading solution” (it does the actual ASX trading and settlement). The Powerwrap contract ends in March next year and SelfWealth will move its clients to OpenMarkets, which will take over as its trading solutions provider.