Fintech firm Supply@Me Capital (LSE: SYME) was reversed into cash shell Abal in March last year. Its shares have been highly volatile. They’ve traded as high as 0.8p and as low as 0.05p.
Some of my Motley Fool colleagues see exciting potential in the company. Personally, I’m sceptical. Here are five reasons I’m avoiding SYME stock.
Business model
It seems to me that Supply@Me Capital stands or falls on its ability to circumvent accounting tests designed to thwart dressing-up a regular inventory sale-and-repurchase agreement as a ‘true sale’ of inventory.
Supply@Me claims it can achieve this through an alchemy of blockchain, innovative legal schemes and special purpose vehicles. But it also admitted in its listing prospectus that its scheme could be banjaxed by the “interpretation or application” of true-sale accounting rules.
Prospectus for Supply@Me’s shares
The listing prospectus also included a pro forma balance sheet for the combined Abal/Supply@Me group. Net assets were recorded as £227m.
In its first post-listing results, net assets were just £778,000. The wrong accounting treatment for the reverse takeover (RTO) had been applied in the prospectus. And it had to write off £224m of goodwill. Shambolic, at best, in my view.
Prospective customers
Supply@Me has reported growing numbers of companies interested in using its scheme. Most recently (1 April), 187 firms with potential inventory of €2.4bn.
Bizarrely, according to a footnote in the announcement, these numbers include “opportunities postponed or lost/not eligible”. Furthermore, Supply@Me doesn’t appear yet to have secured any legally-binding commercial contracts, mentioning only “NDAs”, “term sheets”, and platform “onboarding”.
Delays to first audited results
Since listing, Supply@Me has twice changed its accounting reference date. Last June, it moved its year-end from 31 March to 30 September. This was “to align the accounting reference date to the operations of the group”. Six months later, it changed it again. This time it was to “align its financial year-end with the Calendar Tax Year (31 December), a more standard accounting reference date”.
As a result, we’re still waiting for first audited results for Supply@Me. It had been due to publish them by 30 April, but last week put this back to “during May”. This was “due to the challenges presented by the ongoing Covid-19 pandemic”.
Supply@Me share dealings by insiders
Finally, share sales by Supply@Me’s chairman, shares pledged against a loan by the chief executive, and other share dealings don’t fill me with confidence.
Indeed, in combination, I find the five features I’ve highlighted in this article deeply concerning. At this stage Supply@Me looks to my eye as much like a stock promotion as a credible business.
However, while I’m personally avoiding Supply@Me shares, I can certainly see one big reason why I could be wrong.
Clean bill of health?
Supply@Me’s shares were suspended earlier this year (21 January) for technical reasons connected to the second change of accounting reference date. Ordinarily, the Financial Conduct Authority (FCA) would have lifted the suspension as a formality (on 29 January).
However, Supply@Me said on 4 February: “The process has taken longer and is more complex than normal due to the change in accounting reference date, RTO transaction occurring during the period, and multiple financial statements that have been issued.”
The FCA finally unsuspended Supply@Me’s shares on 9 March. Investors keen on SYME may feel the regulator has given it a clean bill of health.
