Last year my family and I went on a safari in Kenya visiting the parks at Masai Mara (to see the Wildebeest and Zebra migration), Lake Nakuru, Amboseli and Tsavo West. While bouncing around in a Land Cruiser in the Masai Mara one morning, we came upon some lions feeding on a recently killed Wildebeest and vultures were milling around in the background waiting their turn to pick at the carcass. Blood and guts were everywhere! I had the most amazing sense of being in the middle of the 'circle of life'. If you have been there you know what I mean. If you haven't been there I strongly recommend going. It's a bucket list must.
And so as the economy and share market gain more confidence, we are seeing a similar evolution. Old carcasses are being picked over and in some cases are being (or will be) brought back to life and being used or will be used as a corporate shell for other purposes. There is a lot of this happening at the moment. A few off the top of my head: GMI, ABQ, AIX, WWM, MMX, AWN and AWK. The beauty of trawling through cigar-butt type stocks is that it occasionally throws up a fresh - and potentially exciting - story like AWK.
AWK is the reincarnated version of MEF: see here for the most recent post.
That post was written in May and a lot has happened since then. I have been meaning to write this post for some time now and in the meantime the price has been volatile - but has recently moved up rapidly. What the share price will do in the short term is anyones guess and I think it's fair to say that AWK has been a traders plaything as the story gets out along with the general enthusiasm displayed toward tech/online stocks. (MBE is another great example). So please very careful with your own analysis on these types of situations.
I have now twice met the person spearheading the company, Andrew Barnes, and have been very impressed. Mr Barnes owns a substantial portion of AWK stock.
Simply, AWK is being modelled on the UK mega success stories Best Invest and Hargreaves Lownsdown PLC. Hargreaves is listed and has a market capitalisation of £5.2bn. These businesses are quite simple: they provide an online platform in which to research, choose and invest in a very broad range of managed funds. To kick start the strategy here in Australia, AWK has bought InvestSmart which is an existing platform for investors to invest in managed funds online. With the relentless move towards SMSFs and tighter regulation in financial services through FOFA, the view taken by AWK (which I completely agree with) is investors will opt increasingly for direct solutions over financial planners. At least, there is plenty of room for both models. InvestSmart was bought for a song from Fairfax. Revenues have been in decline at InvestSmart however this appears to be due to an underinvestment in the website and marketing.
To augment InvestSmart, a stake in research house van Eyk has also been purchased, also for a song. The idea here is to make the research available on InvestSmart so investors can ultimately choose between say different risk profiles, asset sectors, and drill down to ratings on each managed fund. Once selected, the fund can be purchased directly through the website.
AWK will make most of its money through taking a small clip on annual FUM of around 0.3-0.45%. So this is a FUM story and the name of the game is to build scale as quickly as possible. One very important point to note is that AWK is not in the business of building its own investment platform (such as the Macquarie Wrap). Investors will most likely invest in a managed fund via one of the wraps on the InvestSmart website. The reason for this being important to note is that AWK will not incur the substantial CAPEX requirements that goes into the investment platforms, but is merely a selling agent of existing platforms. By investing via a wrap, it is easier to switch between managed funds and other investments such as shares. In time, the InvestSmart website may provide a consolidation platform for investors investing in more than one wrap.
A lot could go wrong. There is already some competition in the space - I understand CommSec offer a similar service. So too does 2020 DirectInvest. There is always legislation risk in financial services. As with other online sectors, gaining the critical mass of eyeballs is essential in order to develop the 'virtuous circle' effect and develop enough scale. And from my recent meetings with CEO's it is apparent there has been a dearth of investment in online in certain sectors (finance and travel especially) in Australia in recent years: this is creating massive opportunity for disruptive players however the future landscape is uncertain. To take this further, yesterday I was given a tour of Fishburners; a Sydney based collective for entrepreneurs. It's extraordinary.
This is a very basic overview of the business. For this post I have avoided getting into the numbers too much. AWK has recently undertaken a rights issue, is cashed-up, and is in all likelihood on the prowl for further acquisitions, so the existing numbers could easily become redundant. I will endeavour to provide some more numbers in coming posts.
Kristian
Disclosure: own AWK
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