In the early days of the stock market, investors bought into companies that they believed would perform well. Naturally, there would be investors who made a decent return while others made losses. There would also be a group of investors who outperformed the rest by achieving above average returns through their own investment strategies. Some of these strategies would go on to be adopted by mutual funds, allowing other investors to participate.
Today, technological advancement has unlocked a wide range of opportunities, leading to the creation of new businesses and in this instance, we are seeing a rise in the financial technology (FinTech) sector.
Recently, Ayondo created much initial excitement being the first FinTech company to list on the Singapore Exchange. However, the group’s shares took a beating shortly after, falling from the initial public offering (IPO) price of $0.26 per share to less than $0.19 at time of writing.
Ayondo has subsidiaries in the United Kingdom and Germany with offices in Singapore, Spain and Switzerland, offering innovative trading and investment solutions for retail and institutional customers.
The group provides social trading services and brokerage services through its two proprietary platforms, WeTrade and TradeHub. The platforms offer contract for difference (CFD) and spread bet trading across different markets and financial products such as forex, commodities, treasuries, indices, cryptocurrencies and shares.
In addition, Ayondo also offers educational and casual trading services via mobile applications through its partners. Through these platforms the group aims to educate and empower customers.
The IPO price of $0.26 per share translates into a market capitalisation of $130.7 million. Meanwhile, the group raised net proceeds of approximately $18.5 million from the total of 80.8 million invitation shares offered under the invitation.
In the area of social trading, Ayondo provides a platform on which the trading signals from certified “Top Traders” are made public and can be automatically run on user’s trading accounts. While users of the platform can choose up to five top traders, they are also given the option of fine tuning the trade to suit the investor’s appetite for risk taking, such as the level of loss protection.
In a mutually beneficial environment, signal providers also known as top traders, are also provided with the opportunity of additional income in the form of a proportional percentage of commission from the brokers. Thus, it also motivates the top traders to refine their strategies to produce the best risk-to-reward trades.
While revenue has increased steadily over the years, the group continues to remain in the red due to increasing staff expenses and other operating expenses. The higher staff expenses are mainly attributable to an increase in number of employees from 41 in FY14 to 72 in FY16, in line with the group’s business expansion.
Meanwhile, the higher other operating expenses comprised mainly legal and professional fees, IT costs, depreciation expense, and other administrative expenses.
Despite an increase in the number of active clients and number of client transactions, revenue for 9M17 was seemingly lower due to the lower notional value of client transactions. The decrease was attributed to the low volatility in the market in 2017, which resulted in top traders trading less than before.
As at 30 September 2017, Ayondo had CHF1.4 million in cash and bank balances, and CHF15.9 million in total borrowings.
While Ayondo does have a unique and interesting business model, the business is largely dependent on stock market volatility, which affects the value of client transactions.
Additionally, copying the trades of other traders could potentially cause the traders to be considered as engaging in fund management activities, thus requiring a license in Singapore, and possibly in other countries as well.
Apart from the two main risks, the group also operates in a highly competitive environment that is seeing a rise of FinTech platforms, such as AlgoMerchant, eToro.com and Robinhood applications. According to industry sources, the US alone sees about US$2.8 trillion worth of copy trading presence.
Ayondo is definitely not for value investors as it is difficult to put an accurate value on the company due to the lack of visible timing on profitability. In this early stage of the business, the group is likely to continue incurring high capital expenditure to expand its businesses.
Notwithstanding that, in a budding environment, investors should also expect high R&D and marketing costs to continue down the mid-term horizon. That said, the company is using 40.5 percent of IPO gross proceeds to repay $8.5 million worth of loans.
Going forward, we do foresee the possibilities that Ayondo will need fresh funds as it continues to burn cash. Given that it has chosen to be a listed entity, fundraising may come in the form of new share placement or rights issue. As such, investors should consider the possibility that they face dilution of the stock should they choose to buy into Ayondo.