SelfWealth? Not so much, as brokerage drops 20pc in ASX debut

Flat-fee brokerage SelfWealth didn’t live up to its name in its first day of ASX trading — closing down 20 per cent on its 20c issue price.

The stock, once described as a ‘Facebook for investors’, opened at 21c and closed at 16c. About 2.3 million of its 117.8 million shares changed hands.

It raised $7.3 million and was valued at about $19 million at the end of trade today.

More than half the cash will be spent on marketing to bring in new users and challenge big bank trading platforms, which control about three-quarters of the market.

SelfWealth (ASX:SWF) offers cheap online brokerage fees of $9.50 and an optional premium subscription for a “social network” that lets users compare portfolios and follow SelfWealth-accredited super investors for $20 a month.

Managing director Andrew Ward says more than half his clients use a model portfolio of 20 stocks gleaned from the top 10 investors on the site, which includes six ETFs, most of the big banks (not CommBank), and “the BHPs and Rios and Woolworths of the world”.

1690 clients so far

SelfWeath so far has 1690 active clients who make on average slightly more than two trades a month.

Mr Ward says they have around 30,000 portfolios in the system, gleaned from a partnership with BGL Corporate Solutions. The 1690 clients are those who have converted to actually using the platform.

Each portfolio is uploaded to SelfWealth with an automated nickname when it’s sent into BGL’s cloud. It’s then up to the broker to chase down the advisor in charge of that account and convince them to convince their client to switch over to SelfWealth.

SelfWealth is bringing on about 200 new users a month at a cost of about $500 per active user. Payback is about 12 months, Mr Ward says.

Right now about 23 per cent of users opt into the premium option once the free trial ends after three months — or about 46 people a month.

Selfwealth’s other revenue channel — which makes up about 60 per cent of earnings — is the interest they keep from the money in customer trading accounts.

Two-year target for positive cash flow

The company reporting revenue of $137,000 in 2017, up 14 per cent on 2016, but saw EBITDA (earnings before interest, tax, depreciation and amortisation) fall 17 per cent to $1.9 million.

“The Company has accumulated losses to 30 June 2017 of $9.9 million and, as not yet profitable, our financial accounts accordingly have been qualified on a going concern,” the prospectus said.

The loss in fiscal 2017 was $3.2 million.

Mr Ward wants to be cashflow positive within two years and have about 2 per cent Australia’s active day traders on the site – about 15,000 people.

He says the EBITDA drop was due to a $10,000-a-month white label contract with BGL finishing at the end of 2016, and a $1.2 million impairment was to write off the value of the original source code — bought from the outsourced developer but never used.