31. August 2021 | 12:16 CET
Square, Aspermont, flatexDEGIRO - FinTechs: Top or Flop?
Many FinTechs have emerged in recent years to put the fear of God into traditional banks with their dusty business models. As with many disruptive business models, the spread of the Internet and smartphones provided the basis for scalable, rapid growth. In addition, sufficient venture capital was available. Valuations in the billions, even before an IPO, were and are not uncommon. In addition, cryptocurrencies began an unprecedented triumphal march. In some places, the sword of Damocles of regulation hovers over the industry and not every Company will reach the finish line. Too many advance praises are priced into some prices. Who will be among the winners?
time to read:
ISIN: SQUARE INC. A | US8522341036 , ASPERMONT LTD | AU000000ASP3 , FLATEX AG NA O.N. | DE000FTG1111
"[...] In Canada, there is $1.75 of debt for every dollar of disposable income - and that was true even before the pandemic. [...]" Karim Nanji, CEO, Marble Financial
Square Inc - Strong Q2 numbers, acquisition of Afterpay announced
One of the fastest-growing FinTech companies is Square Inc. from San Francisco, California. The shares of the payment service provider reached a new all-time high of around USD 280 when the Q2 figures were published at the beginning of August. The share price is currently slightly below this level. The Company thus has an impressive market capitalization of USD 123 billion.
Square initially started as a peer-to-peer payment network via its own CashApp, soon adding options for trading stocks and bitcoin as well as a linked debit card. The latter features led to a sharp increase in user numbers. The number of active users of the app increased from 36 million to 40 million in the past twelve months, and sales via the app climbed 177%. The increasing share of low-margin bitcoin trading pressured the gross margin, but gross profit still climbed by an impressive 94%.
In the future, more features will be added to the app. The CashApp ecosystem will gain access to Credit Karma's tax return services and get Afterpay's buy-now-pay-later (BNPL) service "implanted." Square is looking to acquire the Australian Company for USD 29 billion.
Although Square's newsflow is more than impressive, the question is whether the Company should be considered too expensive. The Company is currently valued at 6 times expected revenue. The P/E ratio for the current fiscal year is 360 (!), but according to analyst consensus, it should drop significantly in the next few years. The 2023 P/E ratio will then be 154. Square is undoubtedly a success story. Only the future can show whether the prices called today are justified.
Aspermont Ltd. - Entry into the FinTech business
If you are familiar with the name Aspermont, you will wonder why the Company appears under the FinTech heading. After all, Aspermont is known as a media group and, in that capacity, as the publisher of the two longest-serving regular publications for the mining sector, the Mining Journal (founded in 1835) and Mining Magazine (founded in 1909). However, anyone following the Aspermont share over recent years will also know that the Company suffered a severe slump in its print and event business in 2015. It, therefore, had to initiate a turnaround towards a digital company from 2016 onwards.
The Company initially focused on the areas of databases (including over 7.5 million addresses of decision-makers) and XaaS (Anything-as-a-Service). In 2020, the new Virtual Event & Exhibition (VEE) division was launched. Aspermont managed to acquire more than 100 new business customers at its launch, including high-profile companies such as Dassault, Hexagon, S&P, Olympus, SAP and Honeywell. The strategy was not just to win these companies for one or more virtual events but to retain them in the long term through bundling and cross-selling. And this has been successful. According to the recently published Q3 figures, Aspermont increased its sales by 11% compared to the same quarter last year. The XaaS (AUD 2.0 million, +25%) and data (AUD 0.3 million, +140%) subsegments grew the most. Gross margin climbed from 58% to 65%, while gross profit increased by 22% to AUD 2.8 million. This success has made Australians want more.
Thus, the Company announced its intention to invest the majority of the quarterly profit in further growth. Part of this strategy is to enter the FinTech sector. The Australians recently announced the launch of a platform to raise capital for savvy investors in cooperation with Spark Plus Pte. Ltd, a consultancy and specialist in roadshows for Asian companies with offices in Singapore and Tokyo, and International Pacific Capital, a Sydney-based securities dealer established since 1987.
Aspermont will hold the largest share of 44% in the new platform. The Company hopes that the data from its databases will play a key role in supporting the new platform's success. On the other hand, there is also cross-selling potential for its product portfolio. The analysts of GBC certify Aspermont with a price goal of AUD 0,09; this corresponds to four and a half times the current price level.
flatexDEGIRO - Profit-taking, an announcement of stock split
Despite the best half-year in the Company's history, the price of flatexDEGIRO shares sank unusually sharply after announcing preliminary results at the beginning of August. At the same time, the 2.2% increase in EBITDA margin to 47.6% and a 127% increase in revenue looked very good. Investors had perhaps been disappointed that customer growth was down at a high level. However, management seems to be very confident of its strategy and used the recent share price slide to stock up in a big way. The analysts seem to see it the same way, with the vast majority of them recommending the share as a buy. The average price target is around EUR 136, which corresponds to an upside potential of 50%. The recent announcement of a share split ratio of 1:4 at the beginning of September should give the stock more momentum again soon.
Square is without a doubt an excellent company with great potential. However, at the current valuation, we lack a short-term price fantasy. From a timing perspective, flatexDEGIRO is extremely exciting. After the profit-taking, the share price could recover in the short term with the stock split. With Aspermont, investors have the chance to profit from the entry into a new business segment of the established Company. Analysts believe that this potential is far from being priced into the share price.