No CEO, no problem. Despite the abrupt exit of the former CEO Cath Whitaker in July 2023, her absence has had no impact on online share trading platform SelfWealth (ASX: SWF) which again reported positive operating cash flow, fresh off the back of a takeover offer by rival Stake, which has been knocked back.
For the quarter ended 30 September 2023, SelfWealth reported $730k in positive operating cash flow marking the fourth consecutive quarter of positive cash flow for the company.
Total operating cash flow for the 12 months from October 2022 to September 2023 reached $2.36 million, with a substantial cash reserve of $12.5 million as of September 30, 2023. Notably, SelfWealth continues to operate debt-free, underlining its financial prudence.
For FY23, SelfWealth reported $29.4 million revenue with net profit after tax of $92k, a substantial improvement on the previous year’s $6.3 million loss.
Throughout the quarter, SelfWealth remained committed to providing online, low-cost share trading services on the Australian, US, and Hong Kong stock exchanges. In a bid to optimise long-term operational efficiencies, the company initiated a cost rationalisation program, resulting in operating expenditures of $6.6 million for the quarter. It came following the departure of Whitaker in July 2023 after taking on the role in April 2021.
SelfWealth’s recent financial success contrasts with the backdrop of a takeover approach from Stake, a rising star in the online investment sector.
A week earlier, Stake presented a non-binding takeover offer to acquire 100% of shares in SelfWealth at $0.175 per share, representing a 25 percent premium over SelfWealth’s last closing price of $0.14 at the time. Despite the offer’s premium, it came at a 27 percent discount compared to SelfWealth’s 52-week high of $0.24.
SelfWealth has faced challenges recently, with its stock price declining nearly 40% over the past year. Trading revenues have decreased by 39%, signalling a significant adjustment from the heightened trading activities seen during the pandemic which saw a large influx of retail investors keen to capitalise on the generational event of a pandemic and suppressed share prices. As a low-cost online broker, SelfWealth’s path to profitability has relied on interest income generated from client cash balances where the Company earns interest on shareholder cash held in their broking account, but is not passed on to the customer.
Increasing interest rates have been a boon for SelfWealth’s Net Interest Margin (NIM) revenue, capitalising on customers that have not withdrawn their cash to accrue the higher interest themselves.
In contrast, Stake, co-founded in 2017 by Matt Leibowitz and Dan Silver, has gained prominence by offering Australian investors low-cost access to Australian and US sharemarkets. Brokerage rates in Australian shares by Stake typically start from $3 per trade.
The super low-cost brokerage has enabled Stake to become Australia’s third-largest online broker and secured significant funding from investors like Tiger Global and DST Global Partners.
The failed takeover bid by Stake reflects a larger trend in the industry, as online brokerage platforms like Commsec and SelfWealth have reported slowing retail investor trading volumes as higher interest rates have put a squeeze on household spending and investors have been cashing out their pandemic gains.
The Board of Selfwealth formed the view that Stake’s incomplete and conditional proposal did not offer appropriate value to Selfwealth shareholders and therefore elected not to engage in substantive discussions with Stake.
Alfred Chan is an Analyst at Emerald Financial, specialising in ASX-listed small cap companies.
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