CHRIS JUDD Invest
By Thomas Galanti
Complii Fintech provides digital solutions for capital raising opportunities, compliance, e-learning and portfolio management tools for financial service providers and AFSL holders in the Australian market. Using a ‘module-based’ system, clients have access to an array of different services, allowing easy cross-selling of products and a ‘one-stop-shop’ for fintech solutions. The web-based platform should allow for grater scalability of their services overtime, as they introduce new offerings and adapt to constantly changing regulations in the space. For a long time, Fintech has neglected the outdated back-end technology used by most financial service providers, leaving space for Complii to end the days of printing, singing, scanning, and emailing documents back and forth to your broker and the costs associated with third-party compliance agencies.
Complii’s ‘modules’ include those relevant for AFSL clients, such as Electronic Compliance, Capital Raisings, Account Fast, Financial Crimes Monitoring, and Risk Management, products for financial advisers, such as ThinkCaddie, and the Client Portfolio for end customers (i.e., sophisticated investors portal). Each module can be accessed through Complii’s web-platform and is treated as a subscription, with recurring payments. The platform model allows Complii to scale their product offerings, cross-selling new services to existing clients as they come available, either through R&D or bolt-on acquisitions.
The environment surrounding Complii’s platform is full of structural, long-term tailwinds, with huge capital flows into fintech expected over the 2020s and renewed focus by legislators on regulations. 2020 recorded the second highest level of investment in Australia’s fintech sector, recording US$1.4bn, and early signs showing 2021 will be the strongest year on record. Globally, the fintech market is expected to grow to ~US$160bn by 2023, at a compounded annual growth rate of 9.2%. Increasing enthusiasm for fintech and the continued digitalisation of the finance industry should give investors confidence that Complii’s platform is supported by a consensus view that the industry is hungry for innovation.
The other persisting factor that should install confidence in Complii’s service offerings is the industry’s constantly changing regulation and greater need for compliance. In 2013, the Commonwealth Government passed a set of reforms to the Corporations Act 2001, in an attempt to restore investors’ trust in financial markets post-GFC. The 2013 amendment was the first of many, with further financial advice regulation set in 2014 and 2016, as well as professional standards reforms to improve training and education in 2017. More recently, the 2019 Royal Commission into misconduct in the banking, superannuation and financial services industry has led to further tightening of regulation, most notably, the requirement to pass the FASEA exam by the 1stof January 2022. Complii’s business model is perfectly suited for the ever-changing rules and regulations, with the capability to bolt on additional services, such as the ThinkCaddie acquisition that offers an array of content to help advisers pass the FASEA exam and meet their CPD obligations.
Given Complii’s relatively small size, with a market cap sub ~$14m and EV of ~$9.5m, their strategy to navigate through a competitive landscape is one of increasing importance as they seek to continue their already impressive growth. In the compliance/back-end fintech space, competition isn’t as much focused around pricing, but the quality of the product and satisfaction of the end user, a marginal change in price is unlikely to result in a significant change in quantity demanded. Complii’s churn rate is near 0%, with none of their clients yet to voluntarily opt out of their subscription. Competition is therefore predominately a threat to future growth in market share, and not ability to maintain clients, given their track record.
The Australian market isn’t overly crowded, with the two notable competitors being Ansarada Group (ASX: AND) and Kyckr (ASX: KYK). Ansarada has the size advantage on Complii, with a market cap of ~$95m, and operates primarily in the M&A, divestments and fundraising side of the market. Kyckr is of similar size to Complii, operating in the Know Your Customer space, with technology around anti-money laundering and compliance.
Complii’s most recent quarterly activities report showed off their potential to quickly scale the business, increasing revenue to $711,000 for the quarter, up ~75% on Q2FY21. Over the period, the business generated a $133,000 increase in annual recurring revenue, a portion of which came from the signing of 7 new clients, bringing their total customers to 95 AFSL holders. Roughly 35% of revenue receipts were implementation costs associated with the Australian Investment Exchange (AUSIEX) deal, which has since been acquired by Nomura Research Institute (NRI). These implementation costs are expected to remain relatively constant over time, as Complii continues to grow the number of AFSL clients.
With a micro-cap size of ~$14m, $4.5m cash and debt free (~$9.5m EV), investors should have their eyes locked on future 4Cs to estimate cash flow breakeven and an eventual turn to profitability. In Q3, net cash flow used in operating activity was $897k, of which $430k were one-off costs associated with historical obligations and unlikely to recur in following quarters. Assuming a conservative growth in revenue and given the fixed cost structure of a web-based platform business, it becomes increasingly easy to see how profitability can be hit in FY23.
The AFSL market in Australia is huge, with over 6,000 AFSL license holders. Of the 6,000, management has narrowed down ~ 400 potential clients, of which they’ve secured 25%. They grew AFSL clients by 9% over the 3-months to March; conservatively extrapolating from Q1 to Q3 data, investors might expect to see total clients for FY21 increase ~40% YoY. It should be noted that although Complii has been able to successfully grow Australian market share to date, a target market of 400 potential clients might become constricting as they continue their growth strategy, an issue that will likely be addressed if management is able to deliver on overseas clients.
Interested investors should look out for specific markers that might indicate significant progress in Complii’s growth strategy and steps towards profitability. These include:
Possible expansion to the UK, Canada, and Singapore – management has stated they’re currently considering options to expand services into overseas markets. Whilst the Australian market will continue to be their core focus, leveraging their overseas networks for a gradual expansion into new markets is constantly being considered.
Attractive take-over target – considering a $9.5m EV and impressive IP already adapted by some of Australia’s most established and well-known brokers and financial advisers, Complii is likely a key target for larger competitors or comparable businesses looking for entry into the fintech space. The recent deal with NRI (AUSIEX) has potentially opened the door to a potential suitor, whilst also proving to many other possible buyers the quality of their business.
Bolt-on acquisitions – given Complii’s platform model, management is constantly looking for value-add opportunities through the introduction of new services to existing and potential clients. Bolt-on acquisitions, similar to the ThinkCaddie deal in 2019, will constantly be considered.
Increased fees – Complii’s impressive track record of near 0% churn should give management the confidence that there is plenty of room for top-line growth through a fee increase. Whilst it currently wouldn’t be advisable to increase fees in the early stages of their growth strategy, it’s reasonable to believe management might consider doing so once they’re comfortable with their place in the market.
For those risk seeking investors interested in a growth opportunity in the fintech space, with the patience and courage to follow the progress of a micro-cap opportunity, Complii might be one to add to your watchlist. With a strong cash position, quickly growing recurring revenue with a relatively low fixed cost base, and experienced management, the story of a cheap stock with great growth potential starts to reveal itself.
Disclaimer: This article should not be construed as investment advice and is for information purposes only. It does not take into account your investment objectives, particular needs or financial situation. Before making an investment in anything, do your own research and contact your investment advisor.