However, over the past six months, the stock has continued to decline in value as the market gives the business the cold shoulder. 

Following these declines, I am starting to wonder if the stock is too cheap to pass up. Considering its market opportunity, I continue to believe the company has enormous potential. 

SYME share price outlook

Over the past year, the company has made tremendous progress on a number of fronts. The alternative finance specialist is working to progress agreements with parties worldwide.

According to its latest trading update, the group is working on completing the signing of a binding agreement with its first funder for the previously flagged inaugural Italian inventory monetisation transaction. 

At the same time, its inventory monetisation platform Trade Flow, which the group acquired in July, is on track to perform better than expected. 

Following a year of consolidation and marketing, Supply@Me Capital’s management seems to be optimistic about the year ahead. And I am as well.

The global trade financing market is worth hundreds of billions of dollars each year. And it is only growing.

The company is not the only corporation pursuing this business. Hence, competition is a risk, but it is working to produce a unique product and structure that could give it an edge over competitors. 

So what does this all mean for the SYME share price? Well, in theory, as the company’s fundamentals improve, the stock should track this improving performance. 

Rising losses 

Unfortunately, it could be some time before investors see any concrete results from the business. According to City analysts, the enterprise is expected to lose money for the next two years, at least. It seems likely that this uncertainty will continue to put the market off from investing in the company. 

I am also wary about investing in the business. While I have expressed optimism about its prospects in the past, it is taking longer than expected for the group to start earning returns for investors.

The longer it takes for the corporation to move into the black, the more money it will consume. In the past, the company has leaned heavily on shareholders to provide the funding to keep the lights on.

The number of shares in issue has increased from 9m to 27bn over the past six years as management has continually issued stock to raise money from investors. 

As such, I am not willing to invest in the company today. I think the SYME share price has potential. Still, until the group starts earning its keep, I believe the business will continue to struggle. 

Seeing such volatility in a penny stock is hardly surprising. But is this collapse in market capitalisation an opportunity to buy the shares at a discount? Let’s take a look.

The volatile SYME share price

As a reminder, Supply@Me is a fintech company specialising in inventory monetisation. This is a fairly complex business. But put simply, it enables companies to cover the costs of their suppliers before actually selling any products. Traditionally, this is done using loans where the products are held as collateral. But under Supply@Me’s platform, a customer could achieve the same result without taking on debt.

That certainly sounds promising. And it seems its customers agree as the management team expects total revenue for the year to come in at £3.9m to £4.9m. By comparison, revenue in 2020 was £416,000, indicating a potential 10x increase. Needless to say, that’s a positive sign. So why did the SYME share price continue falling on this guidance?

The risks continue to mount

Despite the enormous revenue growth, profits still elude this business, meaning it remains dependent on external funding. And with such a lofty valuation attached to this penny stock, it seems investors were simply expecting more growth. As a consequence, the SYME share price has tumbled.

Supply@Me recently secured a new £5m loan with an additional £2m available as of early December. This loan undoubtedly provides some breathing room, as well as bolsters the balance sheet. That may be why the SYME share price jumped slightly on the news.

However, I remain cautious about the announcement, as this loan comes with a 10% interest rate. And with no profits to cover this expense, any slowdown in growth could have some significant adverse impacts on the financial health of this business. Therefore, I would not be surprised if Supply@Me has to turn to shareholders to raise additional capital in the future through an equity issue. Equity dilution in young businesses is not uncommon. But it will harm the SYME share price if management cannot use the raised capital effectively.

The bottom line

It’s pretty difficult to judge Supply@Me in its current state. The business ultimately remains unproven. But the rising level of revenue clearly shows it has a platform that customers are interested in. What’s more, it recently acquired an investment advisory recurring revenue stream through the acquisition of TradeFlow.

I continue to be intrigued by this company. However, it’s become clear that it remains dependent on third-party funding. And if that capital were to disappear, the penny stock could potentially go to zero. Therefore, all things considered, I’m keeping it on my watchlist for now.

Investors have become bearish this week following the fintech company’s release of its financial forecast for the year. So, would it be best for me to follow suit and avoid this stock?

New short-term loan facility with ARC group

There was an early bounce-back in the Supply@ME Capital share price today and it jumped by almost 10%, although it’s down as of lunchtime Friday. The early rise followed news that the company has secured a short-term loan facility with investment bank ARC group. The deal will see an initial loan of £5m with a further investment of £2m in the next 60 days. This deal will replace Supply@ME Capital’s existing loan with Negma Group, which will receive 840m new shares with £2.1m paid back in cash. 

Supply@ME Capital is looking to build a strong relationship with ARC as it continues to generate capital from investors with the added possibility of a dual listing on NASDAQ with ARC. Indeed, I think this deal could be a promising prospect for SYME as international investors will be crucial for building momentum for this penny stock. 

SYME financial forecast 

The company expects to generate consolidated revenue of around £3.8m-£4.9m in the year ending December 2021. This figure is based on proposed fees charged by the group. SYME directors expect revenue to hit similar sums by the end of December 2022. They also said this forecast is not reflective of any contribution from Capital Bank funding, the deployment of the International Chamber of Commerce partnership, or the execution of Sharia-compliant inventory monetisation transactions.  

This report shows us that SYME is continuing to produce revenue and has good prospects for the future. However, for investors who were hoping for some more direction in terms of profits, they could be waiting a while. This lack of direction could explain the drop in the share price. 

Other risks to consider

As touched upon before, SYME will need investor support to get off the ground. However, it’s becoming apparent that this company is heavily reliant on third-party investors. This reliance could spark some volatility in the future. 

In addition, I think it’s important to note the competitive nature of the fintech industry. As an emerging company, SYME could struggle as other big companies such as PayPal continue to dominate the sector. 

Will I be buying? 

Supply@ME capital is proving to be popular with investment banks (such as Negma and ARC group, as their involvement shows), so as long as the company continues to receive monetary backing, I don’t think I will take this share off my watchlist. 

However, I’m less inclined to buy it at the moment until I see more direction in the way of generating profits and more consistency in the Supply@ME Capital share price. So for now , I’ll play a waiting game and see how this stock develops. 

Unfortunately, the firm’s performance over the past year is not much better. Over the past 12 months, the stock is off nearly 60%. 

Investors were selling the stock this week after the company published its revenue forecast for the year. 

Supply@ME Capital share price outlook

The company, which provides supply chain finance solutions for businesses across Europe, expects to generate consolidated revenues of between £3.8m and £4.9m for the financial year ending December 2021.

This forecast is based on proposed fees that the group will charge for the year according to accounting standards. The company expects a similar amount to be deferred and recognised in the following financial year. 

What’s more, management has noted that these figures do not include any contribution from ongoing developments in Captive Bank funding. The numbers also exclude contributions from the International Chamber of Commerce partnership and execution of Sharia-compliant inventory monetisation transactions.

The Supply@ME Capital share price has always been a ‘jam tomorrow’ business. The company’s growth has been taking shape slowly over the past few years. These numbers show the enterprise is heading in the right direction. Its growth is starting to pick up as more and more customers turn to the inventory financing specialist. 

The trouble is, it is pretty challenging to value the enterprise based on what we know today. 

Supply@ME is producing revenues, and it is clear the group has a product customers want to use. But, profits have not yet materialised. It could be some time before they do. In the meantime, it will be challenging for me to place a value on the stock. 

Risks and challenges

There are a couple of other risks I need to consider as well. The fintech sector is incredibly competitive, and companies are continually fighting for market share. This could impact the growth of the Supply@ME Capital share price in the long run. 

The firm is also heavily reliant on third-parties to provide funding for its customers. Therefore, its reputation is far more critical than it would be for a traditional financial business. If its reputation is damaged, third-parties may pull their funding, which would have a devastating impact on its ability to grow and service customers’ needs. 

Considering all of the above, while I believe Supply@ME has an exciting product, I would not buy the stock for my portfolio today. I would rather sit on the sidelines and see how the company’s growth pans out over the next year or two. When the enterprise can generate a sustainable profit, I would consider buying, as this would imply the business can stand on its own two feet. 

However, in the meantime, I am not attracted to the lower Supply@ME Capital share price. 

That does not mean Supply@ME is destined for the same fate. Supply chain finance in itself was not the problem in either of these high profile bankruptcies. However, Supply@ME has a complicated business model and is financing unsold inventory, where traditional supply chain financing deals with invoiced sales. Supply@ME is also new to the stock market, having listed by way of a reverse takeover in April 2020. The UK’s financial regulator has only just allowed Supply@Me shares to trade again and seemingly given it a clean bill of health. But, I  am still approaching the stock with a high degree of caution.

How does Supply@ME make money?

It isn’t easy to get a handle on what Supply@ME does, but here is what I have been able to ascertain. Supply@ME owns shell companies that buy unsold inventory, be it raw materials or finished goods. Supply@ME packages the inventory purchases into securitised notes which it then sells to funders. The inventory sellers lease back the inventory, so it remains on their premises.

Source: Supply@ME Annual Report

The companies that sold the inventory to Supply@ME can repurchase it slowly, with a markup, presumably to make an actual sale to a customer themselves. Remarketers will be used if inventory remains unsold, presumably on behalf of Supply@ME. Insurance claims will be relied upon if the remarketers fail.

If this all sounds complicated, it’s because it is. And it’s going to get more complex.

Supply@ME share price

Supply@ME has acquired TradeFlow Capital Management. This Singapore-based outfit uses a fund type structure to provide non-credit financing to commodities companies with goods in transit or storage.

The acquisition was a cash and stock deal. A £5.6m issue of convertible loan notes in June 2021 covered the cash part. The creation of around 1.48bn new Supply@ME capital shares, or around 5% of its existing share count, covered the stock part. There is the possibility of nine further tranches of notes being issued, which suggests the company is not done on the acquisition front.

Supply@ME is still loss-making — 2,964m in 2020 — but revenue grew sharply from £4m in 2019 to £1,147m in 2020. The number of client companies has more than doubled. But, one single company seems to be responsible for 6% of the total amount of inventory sales which is a worry. 

I don’t doubt there is demand out there for monetising unsold inventory, which Supply@ME will continue to tap. But I do not think the Supply@ME share price is a bargain. Its business model is tough to get to grips with. The design seems to be intended to prevent Supply@ME and its customers from being in a creditor-creditee relationship. Maybe that’s the point, but it leaves me unsure who is liable if inventory remains unsold and it cannot be insured, which is possible. I can see the possibility of financial difficulties and perhaps legal wrangles. I will not be buying this stock for my Stocks and Shares ISA.

The value of the loans originated by the enterprise has grown steadily over the past year. The gross origination of client companies increased 13% between December 2020 and the end of March, to €2.4bn. It now has a total of 187 client companies.

Acquisitions to boost growth 

To help increase growth, Supply@Me has been acquiring other businesses in the sector. Towards the beginning of the year, it set about acquiring a “complementary inventory in-transit business“. According to management, this will help the group achieve its goal of being a leading global inventory monetisation platform. 

At the same time, the group has agreed to a captive funding route with an Italian banking group, which hasn’t yet been named. It has also agreed to acquire 10% of a fintech bank, the name of which also hasn’t been disclosed. 

This strategy will enable the company to use bank deposits to fund its lending, subject to regulations. In theory, with access to this additional funding, the firm should be able to accelerate its growth and lending prospects. 

All of the above suggests to me the group is firing on all cylinders. As such, while the Supply@Me Capital share price has been under pressure recently, I think its fundamentals are improving.

This bodes well for future share price potential. A company’s share price should track its underlying business performance over the long run. Therefore, as Supply@Me continues to build up its lending network and relationships in the financial services industry, I think its stock price should reflect its improved outlook. 

That said, while the company has made tremendous progress over the past two years, it’s still a small enterprise. At the time of writing, the share price has a market capitalisation of £121m. The stock price of 0.38p also means this business is a penny stock. 

Supply@Me Capital share price outlook 

Due to the size, this company might not be suitable for all investors. Smaller businesses can find it harder to attract talent and financing, which may impede growth. What’s more, the financial services sector is highly regulated. If Supply@Me falls foul of regulators, its growth could collapse overnight. These are the primary risks the enterprise faces today. 

Despite these risks, I’m encouraged by the company’s growth over the past two years. As such, I’d buy the stock for my portfolio today as a speculative investment. If the group’s underlying growth continues, I reckon the Supply@Me Capital share price has a bright future. That’s assuming none of the risks above materialise. 

The business model

Supply@Me is a young fintech company, which is attempting to offer a new way of inventory financing. This is where companies take out a short-term loan with a bank so that they can purchase products. As an alternative, Supply@Me is enabling companies to achieve the same result, without the need to take on debt.

Evidently, this has a number of benefits, especially because companies can avoid incurring debt. This has resulted in a growing number of customers, from 82 a year ago, to 187 this year. That said, the company has delayed its full-year 2020 results release, and it is difficult to judge how the new customers have affected the financials of the company.

It does have to be mentioned that the business is still unprofitable though, and is only generating very small revenues. Based on the youth and uniqueness of the company, there is no guarantee that it will be able to generate profits any time soon. As there is no clear path to profitability for the business, I can see this having a negative impact on the SYME share price in the near future.

Future prospects

Due to the limited history of the company, it is very difficult to judge its future prospects. Despite this, I feel that it is moving in the right direction. For example, at the end of May, the firm acquired TradeFlow. This is a Fintech-powered commodities trade enabler focused on SMEs, and it is hoped that this acquisition will increase the value of Supply@Me. Investors certainly felt that this was a positive move, with SYME shares rising more than 6% on the day.

Further, Supply@Me has recently managed to raise £5.6m through convertible loan notes. This money will be used to support the acquisition of TradeFlow and provide more working capital for the business. I believe that this could help the company in its attempt to grow revenues.

On the other hand, I do have many worries about the stock. For example, it was initially sold to investors on a prospectus showing net assets of £227m, yet on its post-listing balance sheet, net assets were less than £1m. This is a very large problem for any public company, as it does not exactly show management competence. It was no surprise that the SYME share price fell heavily after this was revealed. The fact that the 2020 full-year results have been delayed twice has reinforced my fears.

Am I buying SYME shares?

I can see significant amounts of upside potential, and it certainly has an interesting business model. It could well have a bright future. But I’m staying away from SYME shares. A mixture of poor accounting and a lack of a clear route to profitability makes this company too much of a risk for me.

Peter Bevelin, author of Seeking Wisdom: From Darwin to Munger, has put the ultimate answer in a nutshell: “If a catastrophic outcome is possible or you can’t judge the downside, stay away.”

With this in mind, I’ve asked myself whether I should buy UK penny stock Supple@Me Capital (LSE: SYME). I’ll say straight off that I’ve concluded I should avoid it. Here, I’ll explain my reasons for steering clear and also look at the potential upside, if my caution is misconceived.

Empty platform

Supply@Me Capital has developed a fintech platform. It aims to bring together companies wishing to raise cash against their inventories with funders willing to supply it. This at a cost that makes a profit for both the funders and Supply@Me.

The company gained a stock market listing in March 2020. It targeted a first securitisation of inventories via its platform within six months. But, so far, it hasn’t managed to bring together a single deal.

A £227m penny stock

I’ve previously been sceptical about Supply@Me’s prospects. For one thing, I’m not convinced the company’s business model is actually viable. And there are a number of other things that concern me.

First, Supply@Me was sold to investors on a prospectus showing net assets of £227m — bang in line with its market capitalisation at an issue price of 0.7p a share. However, on its post-listing balance sheet, net assets were less than £1m. Goodwill had been entirely written off.

Waiting for Godot

As well as the repeated delays to a first securitisation of inventories, the publication of this penny stock’s first audited financial statements has been put back and back. First, because the company has twice changed the date of its financial year-end. And second, because it’s simply failed to get the results out by the dates it’s set.

On 19 January, Supply@Me told us the results would be “published in April.” On 23 April, it put the date back to “during May.” On 26 May, it said the statements “are being finalised, with publication expected next week” (i.e. during the trading week ending 4 June). And on 4 June, it announced another delay. It said it will publish the results only after it’s secured a new funding facility “expected to be completed in the coming days.“

In view of the net assets carry-on, and the repeated delays to both the first securitisation of inventories and first audited results, Supply@Me doesn’t pass my ‘smell test’. I’d want to at least see those audited results before going anywhere near this penny stock. But what if my scepticism is misconceived?

A penny stock high-flier?

Supply@Me shares are trading at 0.39p, as I’m writing. At this price, the market capitalisation of the company is £128m.

This may look high for a start-up business, but if the company really has found a way to revolutionise inventory monetisation through its fintech platform, the market opportunity could be vast. Supply@Me talks of an addressable market of inventory under management in the $trillions. Not a bad target for a little UK penny stock!

Such behaviour isn’t all that uncommon for young fintech companies. And while it’s too soon to tell, I think Supply@Me could be a viable business capable of substantial growth. So what does it do? And should I be adding this business to my portfolio?

The business

Retail companies often use inventory financing to cover the costs of their suppliers before actually selling any products. This is done by taking out a short-term loan with a bank to buy products intended for later sale. These products are also used as collateral on the loan just in case the retailer cannot find a customer.

Supply@Me is attempting to offer a new and potentially disruptive method of doing this, whereby a company can achieve the same result without needing to take on any debt. So how does this work?

Using the firm’s platform, a company can ‘sell’ its inventory to Supply@Me’s creditors. This quickly generates cash, and the assets are used as collateral. It can then repurchase this inventory in the future once a customer has been found. But if it’s unable to find one, another business using the platform can then buy it for their own operations. Either way, a company can generate cash quickly, the creditors get their money back, and no debt is involved at any stage of the transaction.

In my opinion, it’s an interesting idea that could carry the SYME share price higher if successful. After all, removing debt from the equation allows firms to utilise inventory financing without compromising their balance sheets. And based on the latest results from March this year, it has attracted some attention. It currently has a total of 187 customers (up from 82 a year ago), with more than €2.4bn of inventory assets moving through the platform.

The SYME share price looks expensive

As promising as this business idea may be, it’s far from risk-free. And looking at the volatile SYME share price, there appears to be quite a high level of uncertainty among investors. The business is not a profitable venture at this stage, and likely won’t become one without significantly scaling up operations.

Should it fail to retain or attract businesses to its platform, creditors will find it more difficult to regain their original capital. Consequently, they will likely reduce their purchasing of other inventory assets, leading to the platform effectively becoming unusable. Based on existing performance, I think this is an unlikely scenario. But at this early stage, it is a possibility.

What’s more, the valuation does seem a bit rich for my tastes. Even with the promising growth achieved in 2020, total revenue for the first six months only came in at £368,000. Looking at the SYME share price today, it has a market capitalisation of around £130m. Needless to say, that’s a lofty price tag.

I’ll be keeping my eye on this business throughout 2021. But for now, I won’t be adding any shares to my portfolio, especially since I think there are far better growth opportunities available today at much lower prices.

Some of my Motley Fool colleagues see exciting potential in the company. Personally, I’m sceptical. Here are five reasons I’m avoiding SYME stock.

Business model

It seems to me that Supply@Me Capital stands or falls on its ability to circumvent accounting tests designed to thwart dressing-up a regular inventory sale-and-repurchase agreement as a ‘true sale’ of inventory.

Supply@Me claims it can achieve this through an alchemy of blockchain, innovative legal schemes and special purpose vehicles. But it also admitted in its listing prospectus that its scheme could be banjaxed by the “interpretation or application” of true-sale accounting rules.

Prospectus for Supply@Me’s shares

The listing prospectus also included a pro forma balance sheet for the combined Abal/Supply@Me group. Net assets were recorded as £227m.

In its first post-listing results, net assets were just £778,000. The wrong accounting treatment for the reverse takeover (RTO) had been applied in the prospectus. And it had to write off £224m of goodwill. Shambolic, at best, in my view.

Prospective customers

Supply@Me has reported growing numbers of companies interested in using its scheme. Most recently (1 April), 187 firms with potential inventory of €2.4bn.

Bizarrely, according to a footnote in the announcement, these numbers include “opportunities postponed or lost/not eligible”. Furthermore, Supply@Me doesn’t appear yet to have secured any legally-binding commercial contracts, mentioning only “NDAs”, “term sheets”, and platform “onboarding”.

Delays to first audited results

Since listing, Supply@Me has twice changed its accounting reference date. Last June, it moved its year-end from 31 March to 30 September. This was “to align the accounting reference date to the operations of the group”. Six months later, it changed it again. This time it was to “align its financial year-end with the Calendar Tax Year (31 December), a more standard accounting reference date”.

As a result, we’re still waiting for first audited results for Supply@Me. It had been due to publish them by 30 April, but last week put this back to “during May”. This was “due to the challenges presented by the ongoing Covid-19 pandemic”.

Supply@Me share dealings by insiders

Finally, share sales by Supply@Me’s chairman, shares pledged against a loan by the chief executive, and other share dealings don’t fill me with confidence.

Indeed, in combination, I find the five features I’ve highlighted in this article deeply concerning. At this stage Supply@Me looks to my eye as much like a stock promotion as a credible business.

However, while I’m personally avoiding Supply@Me shares, I can certainly see one big reason why I could be wrong.

Clean bill of health?

Supply@Me’s shares were suspended earlier this year (21 January) for technical reasons connected to the second change of accounting reference date. Ordinarily, the Financial Conduct Authority (FCA) would have lifted the suspension as a formality (on 29 January).

However, Supply@Me said on 4 February: “The process has taken longer and is more complex than normal due to the change in accounting reference date, RTO transaction occurring during the period, and multiple financial statements that have been issued.”

The FCA finally unsuspended Supply@Me’s shares on 9 March. Investors keen on SYME may feel the regulator has given it a clean bill of health.