A Strong Pandemic Stock Market
Against all the odds, and certainly against the expectations of most “experts” the pandemic environment has been one of the strongest ever periods in history for the stock market. Companies in the tech space have excelled, as they are seen to be immune to the effects of Covid-19, with Apple (AAPL) hitting the $2tln valuation mark, and the likes of Tesla (TSLA) crucifying the shorts.
While no one can pretend valuations are not high, or even sky high, a bottleneck of investing in companies that are resistant to Covid-19, and an exodus from those which are not, has meant that market breadth has been skewed into a few select companies and sectors.
Better Than Dotcom?
But while it is understandable that the big market cap plays have attracted fresh cash, the real phenomenon is the flow of money into the small cap space – with the UK juniors and AIM arguably enjoying their best run since the Dotcom era. Indeed, a leading fund manager I spoke to recently suggested conditions are even better than then.
The point is of course witnessed by the rise and rise of companies like Eurasia Mining (EUA) and Metal Tiger (MTR) for the miners, and Novacyte (NYCT) and Synairgen (SNG) in the biotech space. But it is perhaps the tech zone which has really caused the bulls to rake in the profits: 7Digital (7DIG) and All Active (AAA) have led the tech winners, with little sign of any meaningful retracement.
Supply@Me’s 10 Fold Increase
However, the king of them all so far this year is undoubtedly Supply@Me, with a 10 fold increase in the share price over the course of August. Like any company which soars by such a margin, the market is divided between those who are or were short and are throwing stones, those who have scored a multibagger, and those who missed the boat and are scratching their heads.
Perhaps the first point to make regarding the magnitude of the rise in Supply@Me is that it is a symptom and an indication of just how bullish the stock market is currently. Small is beautiful currently as it enables (furloughed) investors to get the greatest bank for their buck. In addition, Supply@Me’s inventory monetisation model is tech based, so it is scalable both in terms of the offering, but also geographically, one of the reasons that tech companies are leading the stock market currently.
Cash Strapped Environment
When you add into the mix the way that Supply@Me’s business model is one that without Covid-19 would be useful to cash strapped companies, but now is an essential resource to maintain their balance sheets, and it becomes less surprising that the stock price has soared. Of course, there are many companies who have a good idea and good tech, but it is all about proving the concept and executing the business model. In terms of this we can refer ourselves to the RNS from the company on August 10.
On that day the shares were standing at 0.086p, with the revelation that a MOU had been signed with iMass Investments for a rollout of an inventory monetisation platform in the Middle East. This was the official starting gun for a rally in Supply@Me shares – so far peaking at 0.92p. This may give the impression of being an over the top move. But to dismiss it as merely irrational exuberance would be to miss the boxes the company ticks at the moment: an ultra hot bull market, a new concept that addresses an urgent need, and a company which already has a financial network to execute its strategy. One presumes that without these three large ticks the rally may have been a decent re-rate, but not the stratospheric move we have seen.
It is usually the case that when a stock massively overperforms – those who do not fully understand the company, are the first to throw stones. This is not usually helped by those who are short of a company’s stock only exaggerating the negatives and ignoring the positives. All of the above mentioned shares such as Eurasia Mining have previously, or are still suffering from bear inspired misinformation, usually equal and opposite of course to those who are calling them up to the moon.
As far as Supply@Me is concerned there are a few key “you may have missed points” to take on board.
One can start with the example of Unicredit, who in June this year teamed up with fintech group Taulia to provide corporate clients with a range of supply chain finance, both bank and self-funded. To date two million businesses use Taulia’s tech platform and the company processes over $500bn annually. JP Morgan is also a client of Taulia.
Supply@Me could aim for £20bn of inventory monetised, to earn £200m in annual net profits. £20bn is just 0.5% of the estimated size of its market, something with its first mover advantage should not be hard to attain. It would mean a goal of achieving 2,000 client companies – not quite the challenge of Taulia’s 2 million.
The difference with Supply@Me is that it is not based on trade receivables, an already mature and cluttered market. Its innovation is in the monetisation of inventory, not the financing of it. Inventory financing might get only to a ratio of 30-40% at best, plus the need to put up collateral, and guarantees.
With Supply@Me companies get 100% monetisation – including VAT. It is based on the true sales of a company, with no derecognition, and no debt. The client has full ownership of the inventory it has just purchased and continues to manage physically. It can then sell it on the Supply@Me Platform to an end customer to raise cash on a contract lasting 3 years.
A buyback invoice is issued by the Platform to the client company, which can pay it by selling new inventory. After the 3 years the contract can be renewed or settled with cash. Unsold inventory on the Platform is sold to Remarketers, backed by a binding put option.
What Supply@Me Already Has
A criticism of any go-go company on the stock market is that there is risk of a “jam tomorrow” scenario. On this basis it is worth looking at what is already on the table at Supply@Me, over and above the iMass MOU. For instance, in Italy the group is currently in discussions with two banks, who have so far introduced 272 companies to add to the 97 in the portfolio previously. Supply@Me will be updating the market soon. Coming months should see a UK programme announced financial institutions here, with a feasibility study (Pilot) ongoing in the US.
Green Flag: Director Share Buying
But for those who only believe in cold, hard cash, rather than the machinations of a new growth story, it may be worth noting that one of the best stock market indicators – director buying has been in evidence at Supply@Me through the recent rally. On August 21 Non-Executive Chairman Dominic White bought £1.5m worth of shares at 0.70p, and on August 28 CEO Alessandro Zamboni raised his stake to just under 26%.
Director share buying and having “skin in the game” are two of the universally accepted green flags for investors. Both White and Zamboni have been buying at the higher levels and in size.
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