Ayondo Ltd (SGX: 1I5) specialises in social trading and was the first company from the financial technology (fintech) sector to be listed on the local stock exchange in March 2018. The company’s initial public offering (IPO) price was S$0.26. As of 7 August 2018, it was one of the IPOs in Singapore’s market of the 2018-vintage that had a stock price lower than the IPO price.
Last week, Ayondo’s stock price fell by a sharp 27.2% to end at S$0.091 each on Friday, 17 August 2018. Over the same time frame, the Straits Times Index (SGX: ^STI) fell by just 2.3%. What could be the cause for the precipitous decline in Ayondo’s stock price?
The most probable reason is that the company reported a weak set of financial results for the second quarter of 2018.
Poor financial numbers
Ayondo released its 2018 second quarter earnings update on 14 August 2018. Trading revenue for the quarter tumbled 9% year-on-year, from CHF 5.1 million to CHF 4.7 million. Ayondo suffered a 15% year-on-year decline in the average revenue per active client (from CHF 226 to CHF 193), which more than offset a 6% increase to 24,246 in the number of active clients. During the quarter, there was “a change in the mix of clients with an increase in the number of B2B [business-to-business] clients who have lower average revenues than other clients.”
With fees, rebates, client bonuses and betting duty tax falling by 3% to CHF 2.5 million, Ayondo’s net operating income fell by 15% to CHF 2.2 million.
Loss before tax, without non-recurring costs such as its IPO costs and financing debt expenses, rose from CHF 1.0 million in the second quarter of 2017 to CHF 3.9 million in the second quarter of 2018. Ayondo’s overall net loss widened from CHF 1.5 million a year ago to CHF 3.0 million.
On a six-month basis, Ayondo’s trading revenue grew 26% to CHF 12.0 million, with the number of active clients climbing 24% to 36,580, and the average revenue per active client inching up 1% to CHF 327. The overall net loss was CHF 9.3 million, compared to a net loss of CHF 4.3 million a year ago.
Ayondo’s balance sheet strengthened during the latest period. At the end of 2017, Ayondo had more debt than cash (CHF 15.6 million in total borrowings and CHF 929,000 in cash); as of 30 June 2018, the company had less debt than cash (CHF 316,000 in total debt, and CHF 3.2 million in cash). The company used S$8.5 million of its IPO proceeds of S$18.45 million to repay most of its outstanding loans.
The company had no cash flow from operations to speak of in both the second quarters of 2017 and 2018, and the first halves of both years.
Ayondo’s second quarter financial performance was below its expectations at the time of its IPO. After reviewing its cash flow position and immediate plans for business expansion, most of the IPO net proceeds that were to be used for platform enhancement and marketing were re-allocated for general working capital purposes. As of 14 August, all of Ayondo’s IPO net proceeds have been fully used.
In terms of its outlook, Ayondo shared the following comments in its earnings update for the second quarter of 2018:
“The Group continues to focus on the growth of particularly its B2B business monetising its pipeline, whilst maintaining cost discipline. Whilst it is hard to predict revenues in the short term due to varying degrees of volatility in the global economy, scaling the business through client acquisition at low cost is at the heart of the Fintech model and the Group will continue to make strong progress in this regard. The Group will closely monitor the regulatory environment that it operates within and seek to react as quickly and efficiently as possible to minimise any potential impact on its business.”
The Foolish takeaway
Ayondo did not produce a good performance in the first half of 2018 given its steeper losses and negative cash flow from operations. The company could become more interesting as an investment opportunity once it gains the scale needed to accelerate its growth. However, as Ayondo had pointed out, it has to be nimble enough to navigate the regulatory environment seamlessly, without disrupting its business.
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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Sudhan P doesn't own shares in any companies mentioned.