I find it odd.
That this quiet Singapore financial firm is buying over a major UK bank.
But I can understand why they are doing this.
iFAST Corporation (SGX:AIY) announced it will buy over an 85% stake in a little-known bank called BFC Bank Limited from BFC Group (that’s based in Bahrain). And iFast plans to raise S$75 million in a private placement to fund the purchase.
A private placement is allows a company to sell additional shares to a pre-selected group of investors, to raise money in the stock market.
The higher the share price, the more beneficial for the company to do a private placement.
What struck me was the huge geography mismatch. iFAST’s main business is in Asia, while the acquisition is in Europe’s biggest financial centre.
But geography limitation is not the concern here
I’ll explain in a bit.
You see, iFAST is one of Singapore’s fastest growing fintech companies. And it’s a highly “capital-efficient” business.
At S$2 billion market cap, iFAST achieved a strong network effect that got them to produce massive profits over the past few years.
Here’s how its simple business model works:
Each time you buy a unit trust from iFAST’s online platform, the company charges you a small transaction fee, and an annual platform fee to “safekeep” these financial products.
Unit trusts are funds professionally managed by an investment firm. This is also called mutual funds.
The more people use iFAST platform to buy and sell financial products, the more it grows its assets under administration (AUA). And the more money the company makes.
What’s more, unlike traditional financial brokers, iFAST does not own any physical branches — iFAST’s entire business is run online.
That’s why iFAST needs to grow as much assets as possible to feed into its already well-established network effect.
Today, its AUA has grown to S$18 billion. Impressive.
Source: IFAST 3Q2021 presentation
But to hit their ambitious target of S$100 billion by 2028, they need to do things differently.
And growing organically in Singapore just isn’t going to cut it.
You see, globally, the biggest players in gathering assets are typically banks. Because banks can collect huge deposits at a cheap cost, making it even more effective to deploy into financial products like stocks, bonds and unit trusts.
Banks are one of the best businesses to use other people’s money to make more money.
The kind of business that iFAST is looking for.
In fact, Singapore banks like OCBC have been actively buying other banks to grow their own assets. And DBS too.
iFAST is using the exact same strategies. Otherwise, it will simply lose out.
That’s why I understand what iFAST is doing: the whole point of the purchase is to get a banking license in the UK, the centre of finance in Europe. To gather more assets from the international market.
Not only that…
iFAST plans to get more financial licenses across different counties, using its platform as the core service to attract assets.
But it’s not going to be easy.
iFAST wants to turnaround the UK bank’s losses and achieve profits by 2025. This means iFAST needs to sink in a lot more money to run the new business.
One of the best performing Singapore stocks
So far, iFAST, by far is one of the best performing stocks in Singapore.
If you’d bought iFAST just five years ago, you’d be sitting on 836% gains. the STI Index only gained 5.9% over that same period.
During the COVID pandemic, iFAST saw a huge flow of new assets as people plowed into financial investments.
Source: ShareInvestor Webpro
In its latest third quarter results, iFast reported a solid 23% revenue growth and 23% net profit growth. And over the last nine months, the company has produced S$161 million of revenues and S$23. million of net profits, much higher than it was a year ago.
This was largely a result of attracting a much higher AUA.
What’s more, the company isn’t affected by the COVID pandemic — Its entire operation is carried out online.
That’s why its latest return on equity (ROE) exploded to 27%, much higher than it 22% over a year earlier.
Source: iFAST 3Q2021 Presentation
Here’s why iFAST, in my opinion is a capital-efficient business: over the last five years, it spent about S$56 million on capital investments. But it grew revenues from S$101 million in 2017 to S$161 million just over the last nine months.
Over that same period, iFast grew its net profits from S$7.7 million to S$23.4 million. That’s a 203% growth from a tiny capital investment.
What’s more impressive is iFast doesn’t carry any debt.
Can iFAST set to soar even higher?
That’s how this quiet financial company could reward shareholders with dividends.
Over the last nine months, iFast paid a total dividends of 3.40 cents per share, 47.8% higher compared to last year.
What I’m more impressed is their clarity of goals.
For example, they are looking to grow its Hong Kong’s business over the next five years, aiming to achieve at least HK$1.5 billion in 2025, and a strong profit margin of at least 33% in 2025.
At first glance, I find iFAST’s acquisition of a UK bank odd. But I get that with its strong network effect and Singapore’s wealth management hub as its tailwind, I think this fintech firm is set to soar even higher in the future.
And I expect its assets to grow at a much faster rate from here.
Sometimes investing can be simple.
Willie Keng, CFA
Founder, Dividend Titan
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Thank you for the clear explanation on iFast and its prospects for growth in 2022. I have a small investment in the same.
Hi Sonny,
Welcome 🙂
Willie
I’m a strong believer in IFast despite the competition from newer players like Tiger Brokers and MooMoo. The share price might take a hit in the short term but it bodes well long term for sure. I’m also invested.
Absolutely, Gad. Be “long-term greedy”. That’s what I’d say, heh.
Cheers,
Willie