In the ever-evolving landscape of Australia’s online retail trading market, a clash is brewing.
In a bold and decisive move, the board of Melbourne-based brokerage firm SelfWealth [ASX:SWF] has rejected a $41.2 million takeover bid from its Aussie rival, Stake.
The board’s firm stance was rooted in their belief that the offer ‘failed to deliver appropriate value to shareholders‘, especially considering the recent 30% plunge in SelfWealth’s stock price since the beginning of 2023.
Stake’s proposal, valued at 17.5 cents per share, was a notable increase from SelfWealth’s last closing price of 14 cents. However, it fell well short of the January stock price of 20 cents, leaving investors pondering the company’s next move.
SelfWealth has been under pressure from shareholders as it has seen its stock price fall nearly 40% in the past 12 months before today’s bounce.
The company also remains without a permanent Chief Executive after the sudden exit of Cath Whitaker in July.
Remarkably, at the time of writing, SelfWealth’s shares have surged to exactly match Stake’s offer of 17.5 cents per share, underscoring the market’s response to this high-stakes financial drama.
Source: TradingView (SWF in Blue)
When wealth prefers itself
The timing of Stake’s offer coincides with a challenging period for SelfWealth, with its stock value under downward pressure since its highs seen during the pandemic when its user base swelled with new investors joining trading platforms in lieu of social activities.
Since its peak in mid-2020, the company has seen its share price tumble nearly 80% as its active user base fell back to the mean.
The company’s latest financial report paints a similar picture, revealing a 39% decline in trading revenues, now at $8.4 million. The euphoria of pandemic-driven trading peaks has faded, posing substantial challenges to the company’s financial stability.
This may have appeared a good time to strike for rival Stake, who saw a similar surge during the pandemic but has held onto many of those customers and now holds over four times the active users at 540,000 since June.
Privately-held Stake has grown since that initial burst into Australia’s third-largest online broker with a suite of products, including US investing with competitive brokerage prices that are three to 10 times cheaper than its rivals for smaller trades.
Despite the challenging market conditions, SelfWealth managed to achieve its first profit in FY23.
The company managed an EBITDA of $4 million and a net profit after tax (NPAT) of $100,000, a remarkable contrast to the $6.3 million statutory loss incurred in FY22.
SelfWealth’s newly appointed chair, Christine Christian, described FY23 as a year of turnaround and change as operating revenue surged 45%.
‘Selfwealth’s maiden profit was supported by positive growth in key metrics. The company’s compelling business model continued to differentiate it from peers and attract a growing and loyal customer base during the period,’ Mrs Christian said after the company’s release of its FY23 results in August.
‘The Company is in a solid financial position, as demonstrated by the end of year cash balance and three consecutive quarters of positive operating cashflow.’
‘This will support Selfwealth’s transformation program and enable it to adapt to shifting investment trends and preferences in the market.’
However, concerns loomed large among investors due to the significant changes in leadership within SelfWealth.
The abrupt departure of CEO Catherine Whitaker in July, after just over two years in the role, raised questions as the departure coincided with the appointment of a new CFO and the resignation of three directors earlier in the year.
Outlook for SelfWealth
Against this backdrop, the current board stood firm in rejecting Stake’s takeover proposal. In their statement today, the board emphasised their commitment to exploring meaningful growth opportunities within the company, although none were signposted.
Instead, the board highlighted the start of a comprehensive cost optimisation program, which is set to be unveiled in detail on Tuesday, 17 October. This program aims to enhance operational efficiencies, ensuring SelfWealth’s resilience in the face of market challenges.
However, investors may need more than reducing costs to feel adequately secure in the company’s future.
Smaller companies in this space live and die by their active users, and a comprehensive strategy to regain market share has been a long time coming.
The shifts in leadership have also created an atmosphere of uncertainty, further complicating SelfWealth’s strategic decisions.
In their latest annual report, the company said it was exploring ‘diversification options’ and activities to attract high-net-worth customers. But still, details were scant as its user growth appeared to hit a ceiling.
Souce: SelfWealth
Stake’s strategic bid signifies a pivotal moment in an industry ready for consolidation. In the realm of discount brokers, survival hinges on scale and operational efficiencies. Something which SelfWealth may struggle to find alone.
SelfWealth major stakeholders, including Melbourne-based fund manager Datt Capital, tech entrepreneur Lee Gaywood, and Gannet Capital, now hold their collective breath as the fate of SelfWealth hangs in the balance.
The outcome of this high-stakes chess game will undoubtedly reshape the landscape of Australia’s online retail trading market.
What trading platforms cant give you
Many retail investors have flocked to these cheaper online trading platforms as a great way to expose themselves to markets outside of Australia for modest costs.
However, there is one key thing that these platforms will not give users: veteran insight and experience.
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While you might not always agree, the point is to hear the other side of the story so you can surf the wave rather than get caught up in it.
Happy investing.
Regards,
Charles Ormond
For Money Morning
