Ayondo Limited

Ayondo Limited (“Ayondo” or the "Company" or the “Group”) is offering 80.77m shared for a listing on Catalist, of which 8.9m shares will be for the public and the balance 71.9m shares via placement. The IPO price is 26 cents and that translate into a market cap of $130.7 million. The offer will close on 22 March at 12pm and starts trading on 26 March 2018 at 9am.

Principle Business 

Ayondo is the first “pure play” Fintech Company to be listed on SGX and considers itself to be one of the Fintech pioneers in Europe that tried to combine trading and investment with elements of social media. "ayondo at a glance" below presents the current value proposition for investors.

Ayondo has subsidiaries in UK, Germany with offices in Singapore, Spain and Switzerland, offering innovative trading and investment solutions for retail and institutional customers.

The services included provided by ayondo include:

• Social Trading
• Self-directed trading
• Casual Trading

Social Trading 

Social trading basically allows ordinary investors to mimic the trades of top traders via the “WeTrade” platform. Top performing traders will be incentivized to build up its followers as they will be paid when followers follow the trades.

According to the prospectus, social trading represents a fast-growing innovation, with an average growth rate of 213%.

Self-directed Trading

The Group also offers CFD and spread bet trading over a wide range of markets, including Forex, Commodities, Treasuries, Cryptocurrencies and Shares.



Casual Trading

This has more of a social element - educating and empowering customers and prospects.

The revenue breakdown by the customer profile is presented below.

Financial Highlights

While revenue has been growing strongly, it started from a low base and in absolute numbers, it is still low and has not reached a level of scale yet. While the gross margin is high, the operating expenses are high too and that results in losses over the last 3 years

It is interesting that the revenue for 9M2017 has fallen despite an increase in active clients and client transactions. According to an article in Singapore Edge, the CEO Lempka attributed the decline in revenue to "almost no volatility in the market in 2017" where top traders traded less than before while the "first two months of 2018 was a complete different picture".

Potential Prospects

The Company listed its prospects in the prospectus as above. You should evaluate for yourself whether you agree or "buy into" the theory to decide if you should invest or trade in this IPO.

Use of proceeds

The Company is raising funds for the above item as well as using $8.5m to repay loans. The loans included interest on the convertible bonds as well as shareholder loans. Why aren't the shareholder's loan converted to shares for the IPO but repaid through the proceeds instead?

What I like about the Company

• Directors are supporting the IPO - All the 3 independent directors subscribed for the shares ranging from 100,000 (Lam Shiao Ning), 150,000 (Foong Daw Ching) to 750,000 (Chan Heng Toong)
• Provides disruption to the fund management industry and incentivise traders to share their trades and set up their track record in a transparent manner - While these traders can potentially be "paper trading", I have always wanted to call "bluff" to many forummers who "boast" about their track record and profitability. The ability to let traders share their trades, establish a real-time track record while earning some fees and not worry about the "middle and back office" functions is great. It allows traders to continue focusing on what they are good at. There is even a "career path" for top traders on this platform
• Ability to attract more fintech to list here - SGX has no hinterland and is probably struggling to attract companies to list here. The ability to attract these fintech companies is good for the market development and ayondo is a good start but may come at a price
• Award winning platform -  The Company has garnered some 19 awards but i have not done any due diligence on how "prestigious" these awards are

Some of my concerns 

• Social trading while innovative is threading into regulated arena - The ability of being able to "mimic" trades of top traders under the guise of social trading may cause the traders to be construed as "engaging in fund management activities" in Singapore. This is a "no-no" in Singapore unless you are properly licensed. Similar in other countries, such activities can be highly regulated and the risk of the Company flouting the rules can be high. Assuming you have a "top" trader that caused retail investors to lose a lot of money, that will certainly invite unwanted regulators' attention. Similar if a trader has too many followers and the calls he made can result in moving the markets, the regulators will also be very concerned as well
• Brokerage business is highly competitive and cut throat  - In many banks, brokerage houses is a "money losing business" due to the advancement of technology and falling margins for brokerage fees. For example DBS Bank has been subsidising DBS Vickers for quite a while now, and traditional brokerage houses such as Kim Eng, CIMB, Lim and Tan etc has been consolidating and combing their operations as a result of disruptions by other players such as Saxo Bank. This is a trend not just locally but globally as well. It seems quite challenging for me to see how ayono can 'cream' any more profits from an industry that is still reeling from disruptions by technology
• Company is still loss making with no visible timing on profitability - While you can argue that ayondo is now investing for growth and scale, the fact is that ayondo is still losing millions in CHF (Swiss Francs) for FY2015, FY2016 and likely FY2017. Personally i am clueless what is the "break-even" point going forward and the "stickiness" of the platform to its users. Is it based on the number of users on its platform or is it the opening up of new markets? According to the prospectus, the Company is expected to remain unprofitable and may require additional financing in future for expansion
• Some shareholders loans not converted to shares - Some of the shareholders loans are being repaid by the IPO proceeds. If these shareholders have "confidence" in the Company, they should be converting the loans and interest into IPO shares instead of cash repayment (see page 63)          
• Shareholders are too broadly held - The shares are held in many hands of pre-ipo investors and private funds such as Luminor. These investors are financial investors and not there for the long term. The listing provides an avenue of exit for their investments once the lock-up is over. The average cost per share of these investors are around 17 Singapore cents, versus the 26 Singapore cents IPO price 
• Competitors are plenty in the different segments -  There are many competitors in the social trading space such as eToro and Zulutrade (refer to list on page 175) and self-directed trading such as CMC Markets, IG, Saxo Bank. I am not very sure how scalable a social trading platform will be in the different markets
• Management is very well paid for a start-up  - Thomas, Robert have been drawing compensation between $250,001 to $500,000 per annum for the last 3 years and Edward and Rick will be in the same band for FY2017. Pretty high compensation payroll for a start up, not to mention the options to be granted (see page 206 and 207 of the prospectus). Robert's annual salary can also move up if revenue (not profitability) hits CHF 65m for year ending 31 Dec 2018 and CHF 130m for year ending 31 Dec 2019 (page 217), not to mention profit-sharing if the company is profitable. I have to say that these are "stretched targets" and it will definitely be something if the Company can achieve these revenue targets in the next few years

Valuation

I have no idea how to value this loss making company trading a huge premium to NAV. This is definitely not a "value-investing" buy.  You can trade it for all you want but it is too challenging or early to say it will become a viable business. As it is, the Company is still cash flow negative. The Company will continue to burn cash for marketing and attracting top traders and users to its platform as it scale up its business.

Chilli Ratings

Coming to the most exciting part - My chilling ratings will be of interest to you, cos i hope you are not confused at the end of it. I am confused myself 😂

Fundamentally, it is difficult to give it any chilli for reasons i have outlined above until we see the Company gains traction in either revenue or subscriber numbers. My feedback from the ground (i.e. people in the know) is mixed. Investors like the story but have some difficulty valuing the company. So long term wise, it is a zero chilli for me, invest or buy only if you like the prospects of the Company.

Short term wise for the IPO punting, it is a 2 chilli rating for me. One chili in support for the first fintech listing and for giving retail investors a chance to subscribe plus one additional chilli because the book runner behind the placement has a good track record. I have always gave him a 2 or 3 chilli ratings in the past and he always delivered. 😅

I am not vested from placement but may try some for the ATM just for fun... happy ayondoing! Do remember its a hit and run...

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