Ann: Quarterly Activities Report and Appendix 4C, page-17

"The company has reduced marketing cost a bit but staffs cost is too high."

It was the sharp reduction in marketing spend in the quarter that got them to cash flow break-even. Without that, they would have been another $300k or $400k underwater.

However, the big problem that they have is that over time their marketing spend is delivering less bang for each buck.

The law of diminishing returns can be clearly seen in the graph below, which overlays the prior quarter's marketing spend with the % increase in trader numbers in the subsequent quarter:



For example, in the prior quarter (SQ2022) the company spent a record $1.6m on Marketing, yet the subscribers in the subsequent half (DQ2022) increased by only 0.4%.

Somewhat alarmingly, as can be seen, despite the increased marketing spend over the past 5 quarters, the pace of trader adds has declined to almost nothing.

"New customer acquisition continues to be competitive" are not great words given the lifeblood of this business is increasing the number of traders; if that stalls you've got big problems because you have no pricing power to drive your top line and your CoDB is difficult to get down much without starting to cut into muscle.

So this is a concerning picture:



Remember, that flattening is despite marketing spend having exactly doubled over the 9 months to Sept 2022 compared to the same period in 2021.

And now the Marketing budget is being reduced, presumably because management itself sees Marketing dollars have become less impactful over time (to having almost no discernible impact in the last quarter).

But it's a vicious cycle: the company desperately needs more traders to generate more cash flows but to advertise more chews up the cash and is not bringing the additional traders, anyway.


What's more, while the average client cash balance over DH2022 was $652m, the company exited the half at $583m, which is 11% lower than the average for the half.

This means that, even if the client cash balance doesn't fall further (which it likely will) the company starts the current half with an 11% revenue headwind per trader.

And if:

1.) trader numbers remain roughly at current levels (which they are likely to do),
2.) cost per trade isn't increased (which it won't be for competitive reasons),
3.) trading activity doesn't increase (which it is unlikely to do in any meaningful way given the perceived equity market uncertainty in the minds of traders who were badly brutalised from early 2022),
4.) interest rates don't continue to rise (which they probably won't given the slowing economy),

...then the company is facing a revenue contraction in forward quarters vs the prior quarters.

The market isn't going to like that one bit.


The company is currently not bankable and raising equity at the current share price would be prohibitively expensive.

So, apart from very specific forms of mezzanine funding, capital markets are basically closed to SWF so I suspect the board knows that the current cash on hand needs to be carefully curated and conserved.

Trouble is that cash needs to be spent in order to attract new custom, either into the existing service offering, or the development of different offerings.

So the company is in an invidious position.

Every quarter that passes, has me thinking increasingly that it has a NGMI feel about it and that the end game is increasingly that it ends up being put out of its misery by someone else coming along and buying the company for its 130,000 trader base, which generates around $30m in Revenue

The problem with SWF is that over $21m of that Revenue (so almost 70% of it) gets consumed in CoDB expenses.

On acquiring SWF, an industry incumbent could, with considerable ease, rip out at least $10m, and probably even more, of duplicated CoDB costs.

So SWF, post acquisition, would be generating close to $7m in Free Cash Flow, net of tax.

So even if SWF was acquired on a modest 10x EV/Net FCF multiple, that's a $70m EV or given the $11m in Net Cash, an Equity Value of ~$80m.

Which is a 60% premium to the company's current Equity Value in the market.

In my view some sort of takeover outcome is almost the only hope on offer to anyone owning the shares today. I thought so to a degree twelve months ago, and that view has only got stronger with each result update.

Because, as a standalone company, aside from a new manic trading frenzy suddenly breaking out (and why would with the cost of capital having risen so much over the past 9 months?), as discussed above, its hard to see anything for the financial performance of the business over the foreseeable future other than a slow grind sideways.

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