CORRECTION: This article originally stated “This is a 28.4% premium to its last reported NAV of £139.4m”, having previously not included the post-year end fundraising. The sentence now reads “This is a 6.9% premium to its last reported NAV of £139.4m plus a subsequent £28m fundraising”.
I have no Luddite aversion to fintech. I think it’s an exciting area for investors. Having said that, I’m steering clear of Bitcoin and also avoiding UK fintech stock [email protected] Capital (LSE: SYME). I’ll explain why in a moment.
More positively, I’ll also discuss a UK stock in the fintech space I think has considerable appeal. I’ll explain what has attracted me to this one, and why I’m watching it carefully.
Not my idea of an asset
There’s a touch of déjà vu about the Bitcoin price right now. Three years on from its massive spike in December 2017, it’s at it again. Only this time, it’s rocketed even higher.
My main problem with Bitcoin is it lacks the credentials of a currency, as it’s not a universally accepted, safe and trusted means of payment, as well as being far too volatile to be a store of value.
If Bitcoin is a new class of asset, it’s one that’s primarily valued by speculators looking for short-term gains from trading on the volatility. And that’s not my idea of an asset.
Why I’m avoiding this UK fintech stock
I’m much more interested in the investment potential of fintech businesses. However, [email protected] Capital is one I’m wary of.
It’s on the FTSE main market, but has a ‘Standard’ listing, which means disclosure and compliance regulations are actually less rigorous than on London’s ‘wild west’ AIM market. At a share price of 0.494p, and with approaching 33bn shares in issue, [email protected]’s market capitalisation is £162m. This compares with last reported net assets of less than £1m.
This start-up stock’s fintech platform is designed to offer companies the opportunity to raise cash from their inventory. It says: “Unlike conventional bank funding, the [email protected] offering is not treated as debt finance on a company’s balance sheet. Rather, it is a ‘true sale’ of inventory.”
Now, international accounting rules are designed to thwart sleights of hand that attempt to turn a financing agreement into a ‘true sale’. Accountants and auditors are required to look at the economic substance of a transaction over its legal form. The fact that “innovative legal schemes” underpin [email protected]’s ‘true sale’ model is enough for me to say “I’m out”.
Why I’m watching this UK fintech stock
I wrote positively about Augmentum Fintech (LSE: AUGM) in an article two years ago. Like [email protected], it’s on the FTSE main market, but has a ‘Premium’ (as opposed to ‘Standard’) listing. At a share price of 127.5p, its market capitalisation is £179m, and it’s a member of the FTSE SmallCap index.
Augmentum invests in early (but not seed) or later-stage investments in private fintech businesses. It currently owns stakes in 18 companies. A one-stop shop approach, providing exposure to a range of exciting fintech businesses, is what appeals to me about Augmentum.
Its shares briefly fell to less than half their net asset value (NAV) in the spring market crash. With so much going on, I didn’t spot it. However, the company spotted an opportunity and bought back its shares at discount prices.
A strong recovery has taken its market value to £179m. This is a 6.9% premium to its last reported NAV of £139.4m plus a subsequent £28m fundraising. Exciting fintech stock though it is, I think this valuation is a bit rich. But I’m watching the shares carefully from now on!
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G A Chester 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.