Crowdcube Discussions R3/May 2018


(Christopher) #1

@freetrade_team hope you’ve had some time to wind down after what must have been a pretty mad week, congratulations again! :metal:t3: :muscle:t5:

I thought i’d start up a thread following on from the Crowdcube discussions as per Adam’s request to continue the conversation over here. [One for the community leaders: does it make sense to have a Crowdcube category so we can find questions and answers more easily, rather than very long thread?]

@adam, I just wanted to pick up this thread started by mikecc over on Crowdcube. He raises an interesting point re: churn vs. hold given the emphasis that’s placed on longer term investing. Elementary question perhaps, but does crypto fall under treasury income or dealing commission in Appendix A 3Y projections? Your input and commentary is most appreciated.

Finally, further to mikecc’s point, I am also curious as to what underpins the following assumptions:

  • Trades per month per customer
  • Average value of customer trades
  • Customer rentention

mikecc
Love the pitch, product, aspiration etc.

I have a question on the components of Treasury Income, which for 2018 you model as £675k.

As I understand it this is the income received by not paying interest on customer cash balances. Is there anything else in it? If so, what is it and what is the breakdown / driver for 2018 and 2019

If not, how does the £675k figure reconcile with the following all from Appendix A?

1: £174m AuM at end-2018
2: Average customer portfolio cash balance = 10%
3: £174m x 10% = 17.4m held in cash
4: £17.4m x 1% interest rates on cash (say) = £174k
5: You have hockey-sticked AuM growth & we’re already 5 months into 2018

I recognise that the jump between 2 and 3 is more complex than presented above, but this presentation won’t be wrong by an order of magnitude.

Adam
Hi Mike, thanks!

‘Treasury income’ includes various things, but the majority is income derived from FX conversion when clients buy foreign securities. The second largest comes from interest on client cash balances (which we keep).

Adam

mikecc
Ok - very helpful Adam.

For 2018:

£174m yr-end AuM x 4% of customer portfolios in foreign stock = c.£7m
x 0.5% spread taken on the FX = £35k

Now - clearly you take that 0.5% spread on both buying and selling, so churn of holdings is actually the relevant - can you help me build this up a bit? What drives your trades per month assumptions?

Am interested because treasury income remains c.50% of your revenue going forward (and probably the more resilient half), and because you’re pushing foreign stock ownership assumption to 50% in yr2 (makes sense given the highly branded US stocks that UK retail customers might aspire to own and trade, rather than index ETFs that they might buy and hold into the long-term, and which don’t generate you revenue).


(Vladislav Kozub) #2

4% foreign stock? About 30% respondents indicated they are interested in the US and another 10% - 20% indicated emerging markets and EU stocks. Only 50% said they will do UK mainly.

I cannot find the presentation on Crowdcube for some reason but I would be worried for the investors if 96% of the portfolios were exposed to the UK mainly, unless I misunderstood the data.

So with 50% exposure to outside-the-UK-market it would be over £400k in FX fees. Am I counting right?


(Christopher) #3

@Vlad, just for precision, AuA @ 4% non-UK equities is for 2018 (pp22 of the May 2018 CC Investor Deck) For 2019/2020 this climbs to 50%.


(Vladislav Kozub) #4

My bad, that’s what happens when you forget how to access the investor deck :sweat_smile:

So does it mean we can expect the US stocks to only arrive circa in December 2018, @rob_h? :thinking:


#6

im guessing this was a typo in their investor deck, 2019 has them at 50% foreign stocks, 2018 at 4% which would leave them well short of their treasury income projections for that year (675k).

also it looks like they are estimating an average holding period per stock of 12 months +/-1. so assuming the typo meant to say 40%, customer assets 173.7m x 0.40 is 69.48m, 0.5% charged twice is 694.8k, so close enough if im right.


(Vladislav Kozub) #8

I will take your word for it, but at the moment I just want to see the App up and running and hope it is going to happen rather soon. Any relevant quotes from Adam on that? :smile:


#10

@Vlad and @Cgwinning let’s hope there’s a blog post sharing what’s next. Just noticed it’s approaching a month since https://blog.freetrade.io/updates-on-live-trading-6ec1dc617361 ( was posted 26th April )


(Craig) #11

Agree. Lets get the team to focus on getting the App live. we’ve either committed or not to the Freetrade company. Whether it’s £50k or £500k treasury revenues it’s only a forecast…which will be wrong if the App doesn’t launch successfully or the App is super successful. Focus needs to be on getting the App up and running!