Investors dismayed by the Ant Group IPO withdrawal but still hungry for action in the fintech monetization space should look more closely at Supply@Me Capital PLC (SYME).
Rather than straight up lending, SYME’s next generation, distributed ledger platform is based on inventory monetization via securitization of inventory assets. Businesses looking to invigorate their capital position undertake a “true sale” of their warehouse to special purpose vehicles created by SYME.
The monetization process enables them to restock on inventory with the newly released capital while buying back their own goods at a low interest rate. The client wins, and so do investors thirsty for robust, reliable yield.
Where Ant Group and its lending ilk provide the gamut of financial products and loans and have an elevated, overexposed risk profile with international regulatory arbitrage a growing concern, SYME is an undervalued laser-guided pure play platform that matches investors with companies looking for extra juice.
The company has revolutionized inventory financing with a simple twist on a classic; the offering isn’t itemized as debt on a company’s balance sheet.SYME usually takes around 6% on each transaction, although this varies; its first portfolio inventory monetization transaction is valued at around €300m ($355m), and is expected to net the company £6.5m ($8.5m) in fees. Deals of this size promise healthy returns, with a high profit margin.
The company has a strong balance sheet and an array of cross-vertical clients ranging from micro, small, medium and large international businesses lined up and is expected to fly out of the gates in Q12021. One institutional lender it is in talks with has a globally diversified investment portfolio valued topping $70 billion.
Crisis? What crisis?
Inventory financing has great visibility and assurances of repeat business for SYME which has built up a loyal client base. The firm skated over the coronavirus crisis lockdown where other firms came unstuck by targeting manufacturers that were struggling or looking for alternative funding to push them through the busy winter period.
It recently announced a deal with a European lender to launch a Shari’a compliant version of its inventory monetization platform is a potential game changer for the firm, which has signaled its intention to push further into the Middle East. Partnering with a local technology firm with expertise in setting-up, marketing and distribution of Islamic religious law compliant products for professional and qualified investors both in the Gulf and internationally.
This is a market of more than 300 banks, 250 mutual funds, and balance sheets of almost $3 trillion. We expect SYME to be able to begin facilitating inventory monetization to customers in this region by end 2021. On the US front, SYME signed a strategic agreement with Anthony Brown and The Trade Advisory in October to launch its inventory monetization platform across several states.
SYME’s client base is mainly drawn from its country of origin, Italy, however moving its headquarters to London in 2020 was a shrewd move. Proximity to London’s financial center opens doors to team with investment lenders from across the planet and raises the prospect of creating a lending network beyond verticals such as food, aerospace, manufacturing and wholesale to potentially match with municipalities.
Fintech peers commonly trade at around 13.5 times enterprise value to 2020 estimated revenues, while SYME is trading at around 6 times value on its diluted price. With another year of trading and the expected addition of around 50 clients between now and Q22021, SYME will be much closer if not beyond its contemporaries. We would expect treble revenues in 12 months, bolstering the value of the company in parallel.
Despite the pandemic, SYME reported revenue growth for the first half of 2020 and cut its debts to shareholders. In September, it onboarded 19 client companies, and the pool of 272 companies originated it held talks with where whittled down into an initial selection of a further 29 corporates upon which due diligence will commence. SYME’s robust approach to client selection is a good sign its management is not chasing customers with weak balance sheets who may be unable to cover inventory payments.
We had a glimpse of where SYME is heading earlier in the year when its share price shot beyond £0.80 on news of a funding agreement with a European bank, before the wider market slump dragged back almost all AIM tech stocks. Expectations of a profitable first quarter next year make the current price of £0.39 seem extraordinarily skinny.