The [email protected] Capital (LSE: SYME) share price has been falling over the past few months. Since peaking at 0.8p in mid-August, the stock fell to a low of 0.4p at the end of September. It recovered slightly in the first few weeks of October, trading as high as 0.54p.
It has since started falling again and is currently on track to break below the September lows. But despite this performance, the company’s underlying fundamentals have only improved over the past few months. This suggests to me the market’s opinion of the business is far too pessimistic.
[email protected] share price opportunity
In a model similar to that used by other peer-to-peer lenders, the organisation matches capital invested by its inventory funders to enterprises that need cash.
The opportunity here is tremendous. It’s estimated the total size of the inventory financing market is €2trn. [email protected] only needs to capture a tiny silver this market to become a significant European financial technology enterprise.
To make this model work, the company needs two things. Businesses willing to lend money, and firms that need to borrow. It has both of these ingredients.
According to its most recent trading update, [email protected] had 142 client businesses which had used the firm’s platform to borrow €1.6bn gross. That was up from just 66 client companies and €972m of gross value at the end of 2019. There are many more clients in the pipeline.
There’s also a panel of lenders who are backing the company’s activities.
[email protected]’s revenue model is simple. There are two ways it makes money. First, from the client onboarding process. Second, the business bundles selections of loans together and then sells them on to large financial institutions.
These ‘Inventory Monetisation’ programmes move the risk off [email protected]’s balance sheet and provide an attractive vehicle for other financial firms to buy. For example, the company’s most recent monetisation is expected to deliver approximately £20.5m of annual revenue into special purpose vehicles, which can be acquired by specialist investors. Meanwhile, [email protected] will pick up an average annual net servicing fee of £6.5m.
The next monetisation is planned for the end of March next year. The strategy is already providing funds for the group. Revenues for the period to the end of September were expected to be £2.3m. The net servicing fee on the monetisation suggests the company is on track to more than double this figure next year.
[email protected] has made tremendous progress this year. Unfortunately, like all early-stage companies, its success is far from guaranteed.
Nevertheless, the group’s fantastic progress this year suggests the outlook for the [email protected] share price is bright. So, while the business may encounter other speed bumps in the near term, when owned as part of a well-diversified portfolio, the stock might produce attractive returns in the long run.
Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.