The [email protected] Capital (LSE: SYME) share price is up by 15% as I write. Shares in this fintech newcomer have risen by more than 750% over the last month. This has pushed the firm’s market cap to more than £200m.
Today’s lift appears to have been triggered by news that chairman Dominic White bought £1.5m of shares on 19 August. Although director buying is generally a positive, I do think the company’s valuation looks pretty steep for a business that reported revenue of just £416,000 in its latest accounts.
Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!
Investors appear to be betting that [email protected]’s inventory monetisation platform will deliver explosive growth and big profits.
If they’re right, I could see [email protected]’s share price rising much further. So should you be buying?
What does [email protected] Capital do?
The company says that it uses technology including blockchain and ERP integration to create a digital version of clients’ physical inventories. Legal ownership of these is then transferred to a special purpose company using “innovative legal schemes”. The client then receives a cash payment based on the value of the inventory, less a 15% deposit.
Inventory financing isn’t new. But according to [email protected], one key difference with its offering is that it “is not treated as debt finance on a company’s balance sheet”.
Let’s talk money: what’s SYME worth?
As far as I can tell, [email protected] hasn’t actually completed any funding deals yet. According to the firm’s latest trading update, it has 97 clients with a total inventory value of around €1.4bn that are waiting for funding. That’s equivalent to around €15m of inventory per client.
[email protected] expects to take a 2% royalty fee on each transaction. So €1.4bn of lending would generate revenue of around €28m. I’d expect fairly high profit margins, so this might be enough to justify [email protected]’s share price.
However, I’d imagine that even if things go smoothly, closing this many funding deals could take a while.
Mr Zamboni is hoping to be able to attract banks and institutional investors to lend money through the firm’s technology platform. A number of parties are already said to be interested. I think that getting the banking of reputable banks and asset managers would be a good sign of credibility for this young business.
[email protected] Capital share price: buy, sell or hold?
[email protected] Capital could be a great success. As it gains scale, profit margins on new funding could be very high. However, I also think this is one of the riskiest new stocks I’ve seen for a while.
I have several specific concerns. I’m a little uncomfortable with the web of related parties which control around 75% of the stock.
Another worry is the July loan deal that saw £4.6m of shares controlled by Mr Zamboni used as security for loans. I’m not suggesting any wrongdoing, but this technique is sometimes used to cash in shares without selling them.
[email protected] is beyond my personal comfort zone. I won’t consider investing until I can see a track record of profitable operation. Right now, I think there are better growth opportunities elsewhere.