Supply@Me Capital PLC – Overbought stock with weak fundamentals.

Supply@Me Capital Plc (LON: SYME) is a FinTech Company, which has an innovative proprietary inventory platform to provide monetisation services to European Manufacturing and Trading Companies.

In September, the Company is expected to release the annual report for FY20.

Recent News:

10 August 2020: Following a joint market assessment in June,the Company signed a Memorandum of Understanding (MoU) with Khaled Abdulla Almass and his investment firm, iMass LLC, to facilitate the expansion of Supply@ME into the Middle East market. It should give the opportunity to scale up the business in the Middle East market. SYME is expecting to have favourable results in Q1 FY21 with the positive initial pilot scheme.

14 July 2020: SYME announced the appointment of Stuart Nelson as Head of Enterprise Risk Management. He joined the leadership team of the Company with immediate effect.

Company Update (as on 27 July 2020)

In this update, the Company announced the development of a dual-funding model. Therefore, it is now progressing with two funding routes to achieve Inventory Monetisation - Open-Funding and Self-Funding. It targets to initiate the pilot by the end of 2020. It is noteworthy that there are 97 Client Companies that have already originated and awaiting inventory funding, as compared to 66 at 31 December 2019. Moreover, a further 272 clients have been introduced by one of the two new Self-funding partners.

The image below reflects the growth in origination from December 2019 to June 2020 together along with the sector-wise breakdown of Client Companies.


(Source: Company Website)

Financial Highlights (for the twelve-month ended 31 March 2020)


(Source: Company Website)

As on 30 June 2020, the Company unveiled the financial statement for twelve months to 31 March 2020. The turnover in the twelve months to 31 March 2020 increased to £416k (FY19: £241k). The gross profit stood at £26k in the twelve months to 31 March 2020 (FY19: £145k), while £224 million had been written off as an exceptional cost. During the period, the Company did not pay any dividend and the directors do not foresee any dividend being payable even in the FY21. In FY21, the Group will be focussing on growing the market share and enhancing technological capabilities. The reverse takeover of Supply@Me S.r.l. into Abal Group PLC was completed in March 2020, and since then, SYME has continued to gain traction from the Inventory Monetisation Platform.

Share Price Performance
 
1-Year Chart as of 19 August 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Supply@Me Capital PLC’s shares were trading at GBX 0.612 on 19 August 2020 (before the market close at 10.06 AM GMT+1), down by 23.69% against the last day closing price. Stock 52 week High and Low were GBX 1.10 and GBX 0.0413, respectively.

From the technical standpoint, 14-day RSI is currently close to the overbought zone, which means there is a likelihood potential for a short-term correction in the stock price.
 
Risk Assessments

The impact of Covid-19 pandemic is difficult to interpret on inventory funding market, especially when interest rates are currently at historical lows. The remote working environment amid pandemic presents heightened operational risks. The increased usage of remote services has escalated the threat of external fraud and cyber-attack. The Company is operating as an early-stage FinTech player and has not generated material revenues, and it is difficult to predict that it will generate significant revenues in the foreseeable future.

Conclusion

SYME has been reporting a loss for the past five years, and the recent bump in stock prices is not fundamentally supported. Therefore, the stock is quite speculative to invest, and it is trading near 52-week high amid an overbought signal from 14-day RSI, which reflects the overstrained situation. Hence, it is not conducive to punt on this stock, merely based on MoU, unless we have some certainty regarding the results of the pilot programme lying in Q1 FY21. If the new business model is unable to increase or maintain originations through Platform, the results of operations, financial condition, or prospects will be adversely affected. As an early-stage business, the financial strength of the business depends on two key factors – Inventory funding and matching this funding to inventory customer base. In twelve months to 31 March 2020, SYME reported a significant decline in bottom-line financial items. Notwithstanding the Covid-19 backdrop, the management of SYME believes that the demand for inventory monetisation is growing and customer base remains strong. However, the impact of Covid-19 on the inventory funding market is difficult to interpret, especially when interest rates are currently at historical lows.
Based on the headwinds faced by the Group, we have given a "WATCH" recommendation for Supply@Me Capital at the current price of GBX 0.612 (as on 19 August 2020, before the market close at 10.06 AM GMT+1), while we look for any clarity over the adoption of new platform or results of the pilot scheme.
 
Mothercare PLC – Covid-19 affecting operations of franchise partners’ and suppliers’

Mothercare PLC (LON: MTC) is FTSE AIM listed specialist multi-channel retailer, and wholesaler of products related to mothers-to-be, babies and children.

Recent News

22 June 2020: In the transformation plan update, the Company continued to make progress on plans announced on 30 March 2020 regarding the focus of resources to grow the Mothercare business. Moreover, it continued to make progress in addressing the legacy infrastructure and associated cost base. Further, the MTC is looking for permanent Chief Executive Officer, and the Company is currently running by the Chief Financial Officer and Chief Operating Officer, with close oversight from the Chairman. The debt position remained unchanged since March 2020.

Half-Year Results (for the 28-week period to 12 October 2019)

(Source: Company Website)

As per the H1 FY20 update released on 10 December 2019, there was a reduction in adjusted loss before taxation from continuing operations to £5.8 million (H1 FY19: loss of £10.5 million). However, the trading remained challenging in the UK market. At the end of H1 FY20, net debt stood at £24.5 million (30 March 2019: £6.9 million). Further, the Company decided to move towards a transformational plan to operate with a capital light business model and focus on the Mothercare brand in the future.

Share Price Performance

   
1-Year Chart as of 19 August 2020, before the market close (Source: Refinitiv, Thomson Reuters)

Mothercare PLC’s shares were trading at GBX 6.00 on 19 August 2020 (before the market close at 9.58 AM GMT+1), up by 2.21% against the last day closing price. Stock 52 week High and Low were GBX 19.61 and GBX 3.70, respectively.

From the technical standpoint, shares were trading well below the short-term support level of 20-day and 50-day simple moving average prices, which reflects a downward trend in the stock and carrying the potential to move down further.

Risk Assessments
 
The Covid-19 pandemic is causing direct disruption to franchise partners’ and suppliers’ businesses and operations. MTC is also prone to liquidity and credit risk and going through a restructuring phase. As interim CEO, Glyn Hughes has left his position, it is also looking for a permanent CEO and situations are quite uncertain from the management front as well.
Conclusion
The Company is on track with restructuring plans set out in March 2020. It is also finalising the arrangement with Boots and existing franchise partners and will make a further announcement in due course. It is currently focusing on reducing the cost base and associated legacy issues. Moreover, the UK retail market is quite challenging amid the recessionary economic conditions. The Company reported a decline in sales in H1 FY20, and the wake of Covid-19 outbreak has made the business more difficult and unpredictable.
 
Based on the headwinds faced by the Company, we have given a “WATCH” recommendation on Mothercare PLC at the current market price of GBX 6.00 (as on 19 August 2020, before the market close at 9.58 AM GMT+1), while we look for any upcoming catalysts.

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