In relation to your earlier question Marley, in my view it is a...

In relation to your earlier question Marley, in my view it is a good medium term buy but clearly time will be the ultimate validator. In summary, the things I like include:

• Revenue, active traders, trades and client cash has increased each and every quarter since March 2017.
• Operational cash flows have improved significantly over the last year and I believe are likely to become positive over the next 2 or so quarters.
• The metrics seem to have been consistent which in my view shows quality in the business.Importantly, I think there is a shift taking place across the ‘financial advisor’ industry. Over the last 15 years, advisors have tended to advise people to put money onto wrap platforms where wholesale unlisted managed funds can be accessed. With the rise of ETFs, these platforms are costly and are becoming redundant. In addition to greater scrutiny of conflicts of interest, I expect advisors are now wanting to shift clients to an online broking platform where they can: (i) continue to provide financial advice; (ii) access ETFs; (iii) trade inexpensively. SWF can provide this as well as provide some of their unique features around realigning investment funds.
• I believe Commsec makes around $100m profit annually from trading (excluding margin lending) and is perhaps valued at ~$1bn(?). If SWF are increasing market share at their rate, their value to a competitor would is also increasing even if they have a lower margin proposition as it can reduce Commsec's profits significantly.
• As market share and revenue increases, it opens up a lot more opportunities for SWF. As people have previously suggested, this could involve mergers with Openmarkets, margin lenders, Sharesight, Hotcopper, 360 or an international business wanting to use their ETF formulation skills, etc. etc. There would need to a good reason to enter into such a transaction but it could quickly increase their scale further to get on the radar or microchip institutional investors.

Probably the main risks to the business in my view at this stage are competitive risks and possibly a reduced level of leadership given Andrew’s extended leave.