The [email protected] Capital (LSE:SYME) share price has had an interesting first year of trading. After coming to the London Stock Exchange through a reverse takeover, it has moved between 0.04p up to around 0.8p. That’s quite a wide 52-week range, and given that it’s currently trading around 0.4p, I think it’s fair to say this is a volatile stock.
Such behaviour isn’t all that uncommon for young fintech companies. And while it’s too soon to tell, I think [email protected] could be a viable business capable of substantial growth. So what does it do? And should I be adding this business to my portfolio?
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Retail companies often use inventory financing to cover the costs of their suppliers before actually selling any products. This is done by taking out a short-term loan with a bank to buy products intended for later sale. These products are also used as collateral on the loan just in case the retailer cannot find a customer.
[email protected] is attempting to offer a new and potentially disruptive method of doing this, whereby a company can achieve the same result without needing to take on any debt. So how does this work?
Using the firm’s platform, a company can ‘sell’ its inventory to [email protected]’s creditors. This quickly generates cash, and the assets are used as collateral. It can then repurchase this inventory in the future once a customer has been found. But if it’s unable to find one, another business using the platform can then buy it for their own operations. Either way, a company can generate cash quickly, the creditors get their money back, and no debt is involved at any stage of the transaction.
In my opinion, it’s an interesting idea that could carry the SYME share price higher if successful. After all, removing debt from the equation allows firms to utilise inventory financing without compromising their balance sheets. And based on the latest results from March this year, it has attracted some attention. It currently has a total of 187 customers (up from 82 a year ago), with more than €2.4bn of inventory assets moving through the platform.
The SYME share price looks expensive
As promising as this business idea may be, it’s far from risk-free. And looking at the volatile SYME share price, there appears to be quite a high level of uncertainty among investors. The business is not a profitable venture at this stage, and likely won’t become one without significantly scaling up operations.
Should it fail to retain or attract businesses to its platform, creditors will find it more difficult to regain their original capital. Consequently, they will likely reduce their purchasing of other inventory assets, leading to the platform effectively becoming unusable. Based on existing performance, I think this is an unlikely scenario. But at this early stage, it is a possibility.
What’s more, the valuation does seem a bit rich for my tastes. Even with the promising growth achieved in 2020, total revenue for the first six months only came in at £368,000. Looking at the SYME share price today, it has a market capitalisation of around £130m. Needless to say, that’s a lofty price tag.
I’ll be keeping my eye on this business throughout 2021. But for now, I won’t be adding any shares to my portfolio, especially since I think there are far better growth opportunities available today at much lower prices.