TechFinancials Profit Warning
On Friday 21st August 2015 TechFinancials, the binary options provider and operator issued a downbeat trading update that saw the shares close down at 21p (March IPO price: 27p) equating to a market capitalization of £14.32m. Last night (Monday 24th) the shares closed at 19.5p equating to a market cap. of just £13.3m.
TechFinancials Profit Warning. In terms of the numbers: revenues increased by just 2.7% from H1 2014 (US$7.15m) to H1 2015 (US$7.34m) although the latter figure is below the H2 2014 figure of $8.4m, a significant fall if one does not consider seasonal variations important to this business. EBITDA is positive although negatively affected by R&D, yet R&D was one of the reasons stated in the prospectus for raising the money!
Post-IPO Poor Decision Making?
This TechFinancials profit warning curiously appears to have singled out the “…..senior management of OptionFair….” for having made “Decisions…..at the end of the first quarter” which would have been in the immediate aftermath of their fundraising IPO.
CySec ‘New’ Regulations?
Blame has also been extended to the ‘impact of complying with the new CySec regulations’ although TechFinancials do not specify exactly which ‘new’ regulations they are referring to.
Nevertheless, the aforementioned ‘decisions’ and CySec regulations have “…resulted in a lower than expected rate of customer conversion at the Company’s B2C OptionFair business”.
The ‘decisions’ raise a couple of questions, notably, 1) What were they? and 2) since they were so close after the fundraising and had such a negative impact on earnings, were they mentioned in the prospectus’s Risk Factors? Likewise, the ‘new CySec regulations’ begs the question as to what these regulations were and whether or not they were known prior to the IPO and therefore also included in the prospectus’s Risk Factors. One suspects the regulations were to do with onboarding clients, specifically KYC, and that the regulations themselves were not new but were simply being properly enforced after the Swissie shambles and Plus500.
September Hot Seats
No doubt the analysts will have Asaf Lahav, Group CEO and Chairman Christopher Bell in their sights when the six month results are forthcoming sometime in September since a 27.8% fall in share price in the first five months of trading is less than desirable for shareholders and does no good to the company itself in terms of credibility and client confidence.
Online betting companies and casinos are forever looking for new content with which to spark prospective clients’ interest, plus to retain current clients who are betting less often owing to the familiarity of the content. One can’t help but feel that OptionFair may well be suffering from relying on the same, unchanging content and that their product needs a makeover.
On the B2B side of the business 24Option, by far TechFinancials’ biggest customer, are building their own platform which may well be a precursor to TechFinancials losing their flagship client. One must hope that TechFinancials move into foreign markets can attract a serious B2B client, or two, to make up this shortfall.