Good morning,

Online broker Selfwealth knocked back a $41 million takeover bid from rival Stake on Monday, saying it undervalued the company. But, its latest figures, released on Tuesday, aren’t exactly anything to crow about.

On a slide titled “Strong growth in key metrics”, the broker relied on the pandemic trading boom to show 5-year CAGR between 67 per cent and 87 per cent. But if you isolate this year’s figures, revenue and gross profit are down, and active traders on the platform have stagnated.

Dig deeper and SWF’s revenue is being driven by interest earned on investors’ idle cash – which itself is down 37 per cent – while trading revenue has fallen 26 per cent. How is that sustainable?

Discount brokering is a volume game, and in a small market, you need scale to survive. It’s clear Stake wants to be the last challenger platform standing to take on good-old CommSec and has its eye on SWF’s 129,400 active traders.

Why SWF rejected the offer outright and didn’t seek to deal behind closed doors is unclear. Industry sources said the board could be hoping for a better price, noting the bid was at a discount to the 52-week-high. Others suggested the new board – which has turned over entirely – has just got its feet under the desk and could be looking to refocus the business after a derailed push into crypto. But how it intends to grow while cutting costs and marketing spend remains a mystery.

Street Talk understands Stake first lobbed its 17.5¢ bid in September, which SWF chased with a buyback at 14.8¢. The board has clearly chosen to back its own horse, but time will tell if it can bring home the cup.

Happy reading,

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