Freetrade Valuation Model

Yes, £225m @ £2.60 a share. See the other thread.

Oh wow - that is heavily discounted than previous round!

On proactive today Freetrade value slides as retail investors park cash

I’d guess they are for A class shareholders with pre emption rights?

Hey Cameron, thank you for sharing the financial model, I think it’s super useful. I’ve helped put together an investment report on Freetrade, and I was wondering whether you’re okay to take a look at it and provide your feedback? If so, here it is: Freetrade - Stockhub If not, I understand, and that’s fine. Manos

There are some things to correct on the “Accounts” table.
SIPP is only available to Plus members.

Thank you for the feedback, I’ve now updated the SIPP bit. Any other feedback, please let me know :pray:

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I’ve taken this excel sheet, and fed it into the Generative AI model, along with the recent 2023 year close updates, as well as the market sentiment and outlook

Here is what the GPT4 model advises
Given the current macroeconomic climate, key indicators, and trends in the venture capital market, here are my thoughts on Freetrade’s potential IPO valuation:

Macroeconomic Context

  1. US Economic Outlook:

Growth: The US economy is projected to grow modestly at 0.7% in 2024, with inflation expected to moderate, but remain higher than central bank targets until at least mid-2024 .

Interest Rates: The Federal Reserve is likely to maintain higher interest rates into mid-2024 before beginning gradual rate cuts .

  1. UK Economic Outlook:

Growth: The UK economy is expected to grow around 1% in 2024, with high inflation and consumer confidence issues impacting overall economic activity .

Interest Rates: The Bank of England is expected to adopt a supportive monetary stance to balance inflation control and economic growth .

  1. Key Indicators:

PMI Data: Both US and UK PMIs indicate slowing economic activity, suggesting a challenging environment for businesses .

M2 Money Supply: Growth in M2 money supply is slowing, reflecting tighter monetary policies and reduced liquidity in the markets .

VC Liquidity and Investment Climate

VC Liquidity: Higher interest rates and tighter monetary conditions are reducing liquidity in venture capital markets, making funding more challenging for startups. This environment pressures companies to focus on profitability and sustainable growth .

Investment Trends: Despite these challenges, sectors such as technology and green energy continue to attract investments due to their long-term growth potential. However, valuations are becoming more conservative .

Freetrade’s IPO Valuation

Given these factors, Freetrade’s IPO valuation will likely be influenced by its financial performance, market conditions, and investor sentiment. Here are the potential scenarios:

  1. Base Case:

Scenario: Moderate economic stability with continued growth for Freetrade.

Valuation: A balanced scenario would likely price Freetrade’s stock around £3-£5 per share. This reflects the company’s ongoing revenue growth and profitability milestones.

  1. Bull Case:

Scenario: Improved market sentiment and strong financial performance by Freetrade.

Valuation: In an optimistic scenario, the IPO price could range from £5-£7 per share. This is supported by higher valuations in growth sectors and Freetrade’s successful expansion and profitability.

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But wait, it gets more interesting

AI GENERATED ANALYSIS WARNING
#NotGuaranteed

Updated Projections for Freetrade’s IPO in 2026

Total Assumptions (From Sheets above)

Current Metrics (2023):
• Users: 1.65 million
• Total AUM: £4 billion
• Average AUM per User: £2,400
• Revenue (2023): £22 million
• Outstanding Shares: 71,100,000

Growth Rates and Inflation:

• User Growth: 25,000 users per month
• AUM per User Growth: 5% annually
• Revenue Growth: 45% annually
• Inflation Rate: 2.5% annually

Projecting User Growth by 2026
Monthly User Growth = 25,000
Annual User Growth = 25,000 * 12 = 300,000
Total Users by 2026 = 1.65 million + (300,000 * 3) = 1.65 million + 900,000 = 2.55 million

Projecting AUM per User in 2026
Adjusted AUM per User (2026) = £2,424 * (1 + 0.05)^3 ≈ £2,805.88

Projecting Total AUM in 2026
Projected AUM (2.55 million users) = £2,805.88 * 2,550,000 ≈ £7.155 billion

Projecting Revenue in 2026

Assuming revenue grows at 45% annually:
Revenue (2024) = £21.6 million * 1.45 ≈ £31.32 million
Revenue (2025) = £31.32 million * 1.45 ≈ £45.41 million
Revenue (2026) = £45.41 million * 1.45 ≈ £65.84 million

MarketCap and share Price
Using P/S ratio of 10.57
Market Cap = Revenue * P/S Ratio
Market Cap (2026) = £65.84 million * 10.57 ≈ £695.33 million

Calculating Share Price
Share Price = Market Cap / Outstanding Shares
Share Price = £695.33 million / 71,100,000 ≈ £9.78

Adjusting for Inflation
Adjusting the share price for 2.5% annual inflation over three years:
Inflation Adjustment = (1 + 0.025)^3 ≈ 1.077
Inflation-Adjusted Share Price = £9.78 * 1.077 ≈ £10.53

Summary
Assuming Freetrade grows its user base by 25,000 users per month, reaching approximately 2.55 million users by 2026, and maintains its growth in AUM per user and revenue, the projected share price for an IPO in 2026 is around £10.53.

This assumes continued economic stability, positive investor sentiment, and successful execution of Freetrade’s growth strategy.

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Growth rate 25k users a month?

It’s 5k max at the moment.

The AUA is also £2bn not £4bn.

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In my experience through work, GPT4 can’t even count the number of words in a sentence!

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Yeah it’s funny because it’s done a pretty good job elsewhere, seems like it’s fairly coherent even if a bit naive, but then it just randomly changes a key input and messes everything up.

thanks folks, I have fed all the public reports to date into the Google Gemini Premum v1.5 model now instead

This is “What Google Says” and it looks more like a sensible evaluation If Freetrade were to consider IPO in 2026

2023 Performance Highlights:

  • Revenue Growth: 45% YoY growth, reaching £21.6 million.
  • Loss Reduction: 71% reduction in losses.
  • Increased AUA: 33% growth in total assets under administration (AUA) to £1.6 billion.
  • Strong Q1 2024: Reached break-even with £0.1 million Adjusted EBITDA and record revenue of £6.7 million.

Extrapolating Growth for 2026 IPO:

To project Freetrade’s potential valuation for a 2026 IPO, we’ll consider several factors:

  1. Revenue Growth: Assuming a conservative estimate of 30% annual growth (lower than the 45% achieved in 2023), Freetrade’s revenue could reach approximately £56.2 million by 2026.
  2. Profitability: Given the break-even in Q1 2024 and the company’s focus on cost discipline, it’s reasonable to assume Freetrade will be profitable by 2026.
  3. User Growth and AUM: The email doesn’t provide specific user growth figures for 2023. However, the “freetrade-freetrade-crowdfunding-2022-deck (2).pdf” document projects user growth to 1.8 million (Growth scenario) or 1.1 million (Baseline scenario) by 2024. Assuming a moderate growth rate, the user base could reach between 2.5 million and 4 million by 2026. AUM is likely to grow proportionally with the user base and increased investment activity.
  4. Valuation Multiples: The “freetrade-freetrade-crowdfunding-2022-deck (2).pdf” document shows a range of valuation multiples for comparable companies. Given Freetrade’s strong growth and profitability potential, a revenue multiple of 10-15x could be reasonable.
  5. Market Conditions: We need to consider the potential impact of inflation and the current business cycle. High inflation could lead to higher interest rates, potentially impacting investment activity. However, Freetrade’s focus on low-risk investments like Treasury bills could mitigate this risk.

Estimated IPO Valuation Range:

Based on the above factors, a reasonable IPO valuation range for Freetrade in 2026 could be:

  • Low End: £562 million (10x revenue multiple on projected £56.2 million revenue)
  • High End: £843 million (15x revenue multiple on projected £56.2 million revenue)

Considering Freetrade’s strong performance in 2023, with 45% revenue growth and a significant reduction in losses, the higher end of this range might be more realistic. Additionally, the successful launch of new products and features, such as the UK Treasury bill offering and the upcoming web platform, could further boost investor confidence and drive up the share price.

Taking into account the inflation outlook and the current business cycle, a moderate approach would be to target a share price in the mid-range of the estimated valuations. This could translate to a target share price of around £10-£15 per share for the 2026 IPO.

It’s crucial to remember that this is just an estimate based on available data and certain assumptions. The actual IPO share price will depend on numerous factors, including Freetrade’s financial performance in the coming years, overall market conditions, investor sentiment, and the specific valuation method chosen by the company.

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ditto. “at the moment” - i do need some averages across longer time range. as the economy pivots or rates ease, I can see more users start to sign up. also EU “expansion” needs a kick, but I do expect some interest from that vastly larger user base to start coming through.

Ok, decided to get creative and just say “IPO In 2 years… go” as opposed to what could be initial response to “Jan 2026 IPO” which is not entirely concise time frame to go on…

Google Says

The previous response estimated the IPO share price target range for 2026 based on a 30% annual revenue growth rate. However, this was a conservative estimate, and Freetrade’s actual growth rate in 2023 was 45%. Additionally, the previous response assumed a linear growth in users and AUM, which may not be accurate.

We will consider two scenarios:

  • Optimistic Scenario: Assumes Freetrade maintains its 45% revenue growth rate from 2023 and achieves the high end of the projected user and AUM growth.
  • Conservative Scenario: Assumes a more moderate 30% revenue growth rate and the low end of the projected user and AUM growth.

We will also factor in the potential impact of inflation and the current business cycle on Freetrade’s valuation. Based on the updated projections for the end of 2026, considering both optimistic and conservative scenarios, and factoring in the 2023 performance data, inflation outlook, and current business cycle, the estimated IPO share price target range for Freetrade is:

Optimistic Scenario:

  • Revenue: £112.4 million (45% annual growth from 2023)
  • User Base: 4 million
  • AUM: Based on the growth rate from 2021 to 2023 (approximately 133%), the AUM could reach around £3.46 billion. However, considering the optimistic scenario, we’ll assume a higher AUM of £5 billion.
  • Valuation Multiple: 15x (high end of the range due to strong growth and profitability)
  • Estimated IPO Valuation: £1.686 billion
  • Estimated Share Price: £24.58 (based on 68,557,243 shares outstanding)

Conservative Scenario:

  • Revenue: £56.2 million (30% annual growth from 2023)
  • User Base: 2.5 million
  • AUM: £2.5 billion
  • Valuation Multiple: 10x (lower end of the range due to potential market fluctuations)
  • Estimated IPO Valuation: £562 million
  • Estimated Share Price: £8.19 (based on 68,557,243 shares outstanding)

Therefore, the revised target share price range for Freetrade’s IPO at the end of 2026 is £8.19 to £24.58.

Key Changes from Previous Estimate:

  • Higher Revenue Projections: The updated revenue projections are significantly higher due to the 45% growth rate observed in 2023.
  • Wider Share Price Range: The range is wider due to the increased uncertainty associated with a longer projection period and the potential impact of economic factors.
  • Higher Potential Valuation: The optimistic scenario suggests a much higher potential valuation due to the continued strong growth and the possibility of a higher valuation multiple.

Important Considerations:

  • These are still estimates and the actual IPO share price could differ significantly.
  • Market conditions, investor sentiment, and Freetrade’s financial performance in the coming years will be crucial in determining the final valuation.
  • The impact of inflation and the economic cycle could affect investor appetite and valuation multiples.

It’s recommended that Freetrade continues to monitor its performance and market conditions closely to refine its IPO strategy and valuation targets.

OK, I can live with either

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its as good as a guess, (or better) than many of us here can come up with looking at :crystal_ball:

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No it isn’t, it’s a known input that is factually incorrect.

Edit: I thought this was regarding the basic error from GPT4 on 2023 AUA.

Either way I think this is an example of a task where it’s pretty easy do to better than the current crop of LLMs, but that said I do think the above responses are still pretty impressive and I doubt it will be long before they can do a passable job at this kind of thing.

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I’m enjoying @FreetradeToTheMoon’s entertaining play around with these tools. It’s a fun experiment but no one should be trusting large language models with anything serious right now.

That’s not to say that other AI avenues are guff… DeepMind does amazing work!

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Great work @FreetradeToTheMoon. Makes interesting reading. Keeping my fingers crossed that the figures generated are within the margin of error when we come to some form of exit.

Great stuff

Garry.

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Unfortunately freetrade went all mark carney with the share printing last couple years, there’s 82.8 million outstanding now, expect it’ll be easily 100+ million by time of any ipo, so cut that price per share projection down by 50%…