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Wise IPO: everything you need to know
Fintech firm Wise is planning its initial public offering. No date has been set yet, but with the original May deadline now passed, observers think the IPO is coming very soon. Here’s what to watch out for.
Wise IPO: what to watch
What is Wise?
Previously known as TransferWise, Wise is an online money transferring service. The company was founded in London by Estonians Taavet Hinkirus and Kristo Käärmann in 2010 and has since expanded considerably.
Wise allows customers to send money abroad at real mid-market exchange rates, as opposed to higher bank-transfer rates, plus low fees.
As an example, Wise charges less than $8 in fees for sending $1,000 to Europe. Going via a bank would cost $26. This is done on a peer-to-peer basis.
February’s rebranding away from TransferWise lets us see where Wise wants to go. It is no longer just for money transfers.
Wise now offers a multi-currency account, designed to make it easier for people to relocate and let them pay with local currencies when ordering goods online, alongside a debit card service.
How is Wise performing financially?
As of 2020, Wise’s revenues were totalling $300m annually, with a 70% year-on-year growth rate. It boasts over 10 million customers worldwide and employs around 2,200 workers in 11 countries.
Ahead of the IPO, Wise is valued at an estimated $5bn – but the float may take its valuation as high as £9bn according to some of the more over-optimistic forecasts.
Looking at financials, Wise appears very healthy.
Its pre-tax profit for the financial year ended March 2020 to £20m from £10m in 2019. As mentioned above, revenues also jumped 70% between 2019 and 2020.
Profitability within the tough challenger bank and money transfer spheres suggest Wise’s upper management is pursuing a successful strategy. Impressive y-o-y revenue growth and an expanding customer base reinforce this.
Because Wise straddles two worlds, challenger banks and money transferring, it has a variety of competitors. In terms of money transfers, Western Union, MoneyGram, WorldRemit, Remitly, and PayPal are Wise’s chief rivals. In the alternate challenger banking space, Wise’s competitors include Monzo, Revolut and Starling Bank.
Against its rivals, Wise has been praised for the transparency of its fees structure. Offering true mid-market exchange rates is also a big selling point for the brand, reflected in the growing volume of transactions handled by the firm. Wise processed £67bn worth of customer payments in 2020 – nearly double 2019’s £36bn.
Where will Wise be listed?
Wise is likely to go public via a direct listing on the London Stock Exchange. This is something of a coup for the LSE, as it could imply incoming rules changes, such as the introduction of a dual-class share structure and lower float requirements, are enticing more tech firms to list in London.
The London-listing Wise is pursuing will be one of the largest European tech listings since Spotify went public in 2018.
A direct listing means Wise will be offering shares via the London Stock Exchange without the need for any intermediaries. There are several potential reasons why Wise is pursuing such a strategy. Wise could be looking to avoid share dilution, for example, or might be wanting to avoid lock-up periods. It may be a money-saving move too, as direct listings tend to be cheaper than IPOs.
Commentators believe Wise could be pursuing a dual-class share strategy – something that has proven unpopular on other London tech listings, such as Deliveroo. Will it prove the same for Wise?
When will the Wise IPO go live?
As touched on earlier, the original May 2021 IPO deadline has passed. Even so, the market is expecting Wise to go live on the London Stock Exchange very soon.
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Stocks pause after rally, City to relax listings rules
“I’m shocked! Shocked to find that gambling is going on in here.” I was looking over some of the recent insights, edicts and proclamations on GameStop, Reddit and RobinHood and felt that market policemen do like to channel their inner Captain Renault sometimes. Anyway, GameStop is still a thing. Not least among the good people of Penarth, Wales. “World’s most avid GameStop traders live in Penarth,” proclaims the Penarth Times, providing a reassuringly British spin on this saga. Shares in GME rallied 18% yesterday to $120. Other Reddit names climbed; Koss rose 13%, AMC added 14% and Dillards climbed almost 12%.
Listings rules are to be relaxed in order to make the City more competitive again and attract more tech IPOs and SPACs. New York dominates this space, but London wants to use its new-found freedom from the EU to attract more of this sort of business. Changing rules around things like dual class shares, which let founders keep control of companies, and the level of free float required for a premium listing – which companies must secure to be included on the FTSE – will surely appeal. The Hut Group eschewed a premium listing last year so its founder could keep his hand on the tiller. Some might say that relaxing rules amounts to watering down, others will point to New York and say ‘we should be having some of that’. The boom in SPACs across the pond has clearly left London bankers a little green with envy. The City always evolves and thrives.
Trustpilot clearly doesn’t mind the current regime too much: the Denmark-based online reviews platform plans an initial public offering in London this year. The full 25% of shares will be available trading, making it eligible for inclusion on FTSE indices. The IPO is expected to raise $50m for a valuation of $1bn. Revenues rose 25% last year as ecommerce picked up during the pandemic.
Shaking up City is just part of the chancellor’s plans for reinvigorate the UK economy (Build! Back! Better!) when he delivers his Budget tomorrow – the alliterative qualities of the word and the slogan adopted all around the world won’t be missed, I’m sure. Budgets are usually fairly orderly affairs for traders. You can rely on something for the property market, good or bad, though lately it’s been tending towards the former. As we saw yesterday, house builders are one corner of the market that always have a reaction. Tory chancellorship 101: if in doubt, juice the property market to keep the
young aspiring home buyers middle class homeowners on board. After that we start talking about cheaper pints and taxes and it’s time for the pub. Gilt markets are less concerned with tinkering on the margins as they are with global bond markets, macro-economic conditions and central bank policy, so I wouldn’t expect a big reaction in the market.
This time though we’re recovering from an unprecedented economic collapse and sky high borrowing. The public finances will need repairing, so the orthodox thinking goes. Proponents of Modern Monetary Theory would argue otherwise…whatever your view, the chancellor is the only one who counts and it seems that despite the pandemic upending many norms, economic orthodoxy is not among them. The chancellor is eyeing tax hikes to repair the finances, though not all at once. Capital gains tax seems set to rise – which will have a real impact on people who own shares. What’s interesting is not that he is pursuing this route, but that there is so little debate about the merits of running higher deficits.
Stocks pause after bounce
Global stocks bounced back with energy yesterday, with the S&P 500 notching its best day in nine months. The broad market rose over 2.3%, whilst the Nasdaq and small cap Russell 2000 both advanced 3%. The FTSE 100 was 1.6% higher. European stocks were flat in early trade on Tuesday as investors pause to think whether yesterday’s rally was worth it. The snapback just looked a little too vigorous to be sustained. Zoom shares rallied 8% after hours following a strong earnings beat. S
Bitcoin was firmer above $49k. A report from Citi suggesting Bitcoin could be the currency of choice for trade was rightly trashed by Jemima Kelly. Meanwhile Goldman Sachs is reportedly restarting its crypto desk. It is thought the bank will begin dealing bitcoin futures and non-deliverable forwards for clients next month. BCA research says ‘stay away’ and New York’s top law officer laid down the law: “Cryptocurrencies are high-risk, unstable investments that could result in devastating losses just as quickly as they can provide gains,” Attorney General Letitia James said Monday in an investor alert.
The Hut Group float – quick take
The next Ocado or another Aston Martin? Online retail group The Hut Group (THG) plans to float on the London Stock Exchange. This is a major boost for the London market with the £4.5bn tag making this the biggest listing of the year.
A full seven banks/brokers are working on the deal, so good tidings all around the City. But what of the individual investor?
After a considerable ramp in tech valuations this year – eg, Ocado +100% in the last 12 months – this looks like a well-timed move, at least on the part of the founder who is due a bumper £700m payout should all go well and still remain very much in control. The question is whether this 10% margin business deserves a tech rating.
A standard listing makes it ineligible for inclusion on the FTSE index although its mooted market cap would be enough just to make the FTSE 100. Any standard listing raises eyebrows as it means no index inclusion and lower governance standards.
And we note that it’s another banker buffet – four of the same banks from Aston Martin’s listing are on the IPO – Goldman, JPM, HSBC and Numis (in addition to Citigroup, Barclays and Jefferies).
Indeed, Goldman’s Duncan Stewart and Anthony Gutman, named on the THG registration document today, were also down on the Aston Martin registration document in August 2018. Let’s hope THG enjoys a better time on the public markets than AML.
Is THG a tech company or a retailer?
THG describes itself as a ‘vertically integrated digital-first consumer brands group’, retailing its own brands in beauty and nutrition, including Myprotein and Lookfantastic, as well as third-party brands. It does this via a proprietary technology platform dubbed Ingenuity.
The business is divided into three core divisions – Beauty, Nutrition and Ingenuity. Whilst the Beauty and Nutrition brands have delivered strong growth, the real value in the shares may well come from the tech platform.
In 2019 THG achieved year-on-year revenue growth of 24.5% to reach £1.1 billion with adjusted EBITDA of £111.3 million. The float aims to raise £920m and would value the company at £4.5bn, which at c40x last year’s EBITDA and x4 sales doesn’t seem like too much to pay for this kind of growth….or does it?!
The answer rests surely on whether it deserves a techy or a retail multiple. Ocado trades in the region of x300 after an unbelievable rerating – but that is another story altogether. THG growth has accelerated in the first half of 2020, with revenue of £676 million, up 35.8% on the equivalent prior year period…but it’s all coming from the Beauty and Nutrition segments, not Ingenuity.
Ingenuity platform – a key growth driver?
Ingenuity has a capital-light, scalable licensing model that offers good revenue opportunity beyond the core retail division. Management are keen to stress that Ingenuity secured £215 million in life-of-contract revenue in the first six months of the year amid an uptick in demand.
Management view the platform as one of THG’s key growth drivers and as a fully scalable solution available to brands at a time of immense e-commerce growth – direct to consumer (D2C) in particular – it has strong potential. The prospectus outlines a target for overall revenue growth of 20-25% over the medium term, with Ingenuity forecast growth of 40% primarily as a result of increasing mix of e-commerce revenues as global brand owners accelerate their adoption of D2C strategies.
But revenues from Ingenuity remain relatively small – £61m in the first half of 2020, which was flat on last year and less than 10% of total group revenues. As a percentage of group revenues, the contribution from Ingenuity is going down. For the moment it looks like a retailer trying to pass itself off as a tech platform. Ocado has managed to pull this off – can THG?