- This topic has 10 replies, 1 voice, and was last updated June 30, 2023 at 7:19 am by
.
-
Topic
-
A new idea for research today is Supply@Me Capital plc (LSE:SYME). This is a very early revenue stage business in the vein of our newly published Duke memo in that it has a differentiated model of providing financing to companies. In this case, it is pioneering inventory monetisation (“IM”), whereby the company’s platforms allow 3rd party funders to purchase inventories from SMEs, freeing up working capital on their balance sheets until they sell the inventory and ship it to customers, at which point they buy back the inventory for the sale. By then providing new inventory to the funders to ‘top-up’ the monetised inventory, SYME’s platform effectively provides a rolling facility. It is key to understand that SYME is not funding the inventory purchases itself, but generates fees by providing the platform, due diligence and monitoring of inventory that it has originated from SMEs on behalf of 3rd party funders. Inventory monetisation is different to receivables financing in that it is not a debt item on the balance sheet for the SMEs- the accounting treatment is an actual sale of inventories, for which the company has proprietary documentation
As the business relies on 3rd party funders and the model is completely new, it is fair to say that the company has suffered delays in monetisation transactions for the last couple of years as they attempted to arrange funds from private institutional investors. Having helped a new private equity business with a novel strategy raise funds, I’ve been through the challenge of investor fund-raising, similarly launching a theoretically superior product, but discovering that finding that one investor to go first on something new/different just takes time and is subject to unforeseen delays. These delays have led to the SYME share price declining significantly due to investor fatigue and the company’s need to issue dilutive convertible loan notes to fund the business through the development period. I am happy to provide anyone interested with chapter and verse of what has happened over the last 2-3 years
In 2021, the company acquired an established business in Singapore called TradeFlow, which manages funds and does something very similar – purchasing in-transit goods to facilitate SME trade i.e. they purchase and own a commodity shipment from a seller while having a back-to-back agreement with a purchaser, charter a ship and buy insurance themselves and then receive payment on delivery. This business, while small, has an incredible track record that is well hidden – as part of my research I discovered a BondAdviser research note of a Ferguson Hyams bond issue for TradeFlow which provided a more detailed insight into the TradeFlow fund structure and their track record. Specifically, the underlying fund returns for the last 3 years (at the time of the report), which will soon be a 4-year track record, show highly stable, positive monthly fund returns and annual returns of 5-6% without a single default and no negative return months (other than 1 due to a shipping delay). This is a hugely impressive track record and when you compare it on the ‘fund supermarket’ websites (Hargreaves Lansdown etc), I can find no credit fund (of which there are many) with such stable or high returns even when they have higher risk (as they are dependent on the credit of the underlying company and hold a broad security package where a claim would be required on default vs. TradeFlow that actually owns the asset with almost no risk of default as they can sell to other purchasers if the original purchaser reneges).
Like SYME’s IM product, it is effectively a new asset class that I believe would resonate with retail investors who can make decisions and be much more willing to understand and invest in something ‘new’ through a listed investment trust structure. I understand that SYME is considering this option of creating a listed feeder fund which would invest in the special purpose vehicles (“SPV”) managed by SYME and TradeFlow. The feeder fund would invest alongside other private and institutional investors that they are already in discussions with, providing bond like returns at lower risk and with less volatility. SYME and TradeFlow continue to charge platform fees to companies and management fees to the SPV funds and feeder fund while not becoming funding principals. The feeder fund’s mandate could be global and allow for investment in both warehoused and in-transit inventory, growing the TradeFlow business and executing the IM transactions for SYME. I believe the opportunity is there to rapidly scale to significant sums under management with this model.
This is clearly a very high risk and binary investment opportunity at an early stage (i.e. could go to zero). With supply chains changing to ‘just in case’ rather than ‘just in time’, companies are increasingly holding more inventory, requiring greater investment in working capital and providing potentially strong demand for the IM product from SME customers. Equally, TradeFlow’s addressable market is enormous and is simply constrained by the amount of funds under management. Some of the above (i.e. the feeder fund structure) is purely my view on what could happen, but I don’t think the market fully grasps the opportunities if they can be executed. The company announced the first warehoused IM transaction this morning which hopefully starts the ball rolling down the mountain.:
This is clearly too early stage for a full investment memo, but a company I thought it was worth putting on radar screens for members to understand in case the business does make progress. In particular, this idea is timely as following the upcoming AGM (30-Jun-22), the company intends to launch an Open Offer to shareholders for new shares at 0.05p (below the current market price) in line with private funding that they recently secured from Venus Capital
I am happy to talk anyone that would like to understand the model in more detail
-
-
https://www.londonstockexchange.com/news-article/SYME/year-end-business-update/15803666
The company has provided a lengthy update this morning, but while the company’s product is interesting with a potentially huge market, we feel that the company isn’t making the kind of progress that we would hope for. While we will continue to monitor the business, we are removing it from the current watchlist of ideas for research with a view to re-instating it if evidence of solid business progress emerges
-
SYME attracting a lot of attention this morning on the back of a strong finish on Friday when it was up 64% on the day. The first IM is now expected this week, alongside a TR-1 substantial holding disclosure this morning from Omni Partners as people feel that institutional interest is a strong indicator. It is unclear what the current situation is, but a 5bn share share loan agreement also expired on Friday and there may be some buying pressure stemming from the lender needing to acquire shares to return these shares – this is unconfirmed however
The detail of the first IM and whether this leads to a snowball effect of further transactions will remain the acid test of long term investment, but our first ‘bagger’ on short term sentiment from our initial posting at 0.0007p
- You must be logged in to reply to this topic.
