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Supply@ME Capital
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== What are the key risks of investing in the company? == As with any investment, investing in Supply@ME Capital carries a level of risk. Overall, based on the Supply@ME Capital's adjusted beta (i.e. 4.61)<ref>Research shows that an investment has two main types of risks: 1) non-systematic and 2) systematic. Systematic risk is the risk related to the overall market, and non-systematic risk is the risk that's specific to an individual investment. Evidence shows that taking on non-systematic risk is inefficient, and it's, therefore, best to eliminate it; and in most cases, elimination is fairy easy to do [by holding a diversified portfolio of investments (i.e. around 15 investments)]. Accordingly, when assessing the riskiness of an investment, it’s best to look at the systematic risk only (i.e. ignore the non-systematic risk). A key measure of systematic risk is beta, and a main way to determine the riskiness of an investment is to compare the beta of the investment with the beta of the market, which is 1. For example, Supply@ME Capital's adjusted beta (5 years, monthly data) is 4.61, and is, accordingly, 561% above the market beta (of 1); assuming that a 'high' level of riskiness is 50% or more above the market beta, then the riskiness of investing in Supply@ME Captial is considered to be 'high' (561%>50%). For estimating an asset's beta, in terms of time period, and frequency of observations, the most common choice is five years of monthly data, yielding 60 observations. One study of U.S. stocks found support for five years of monthly data over alternatives. An argument can be made that the 2 years, weekly data can be especially appropriate in fast growing markets. The beta value in a future period has been found to be on average closer to the mean value of 1.0, the beta of an average-systematic-risk security, than to the value of the raw beta. Because valuation is forward looking, it is logical to adjust the raw beta so it more accurately predicts a future beta.</ref>, the degree of risk associated with an investment in Supply@ME Capital is 'high'. Here, to estimate the adjusted beta, we used the iShares MSCI World ETF to represent the market portfolio; and in terms of the time period and frequency of observations, we used five years of monthly data (i.e. 60 observations in total), which is supported by a study and is the most common choice. We note that the company in its current state was only really formed (following a reverse takeover) on 27th March 2020<ref>Officially, the company was formed on 1st March 2000 (i.e. almost 23 years ago).</ref>, and, therefore, the numbers of available data observations is less than what's typically used in the five years of monthly data beta calculation (i.e. 33 observations vs. 60 observations). The beta value in a future period has been found to be on average closer to the mean value of 1.0, and because valuation is forward-looking, it is logical to adjust the raw beta so it more accurately predicts a future beta. In addition, here, we have assumed that for an investment to be considered 'high' risk, it must have a beta value of 1.5 or more, and for it to be considered 'medium' risk, it must have a beta value of between 0.5 and 1.5. Further information about the beta ratings can be found in the appendix section of this report. That said, an argument has been made that especially in fast growing markets, it's best to use two years of weekly data; using the two years, weekly data, Supply@ME Capital's adjusted beta is 1.36, which is considered relatively 'medium' in terms of riskiness level. The key risks can be found below. For us, currently, the biggest risk to the valuation of the company relates to the company being unable to secure a sufficient amount of inventory finance funders. === Risk factors specific and material to the group === * The group is at the early stage of its development, has not generated consistent revenues from its operations to date and is not currently profitable. * If the group is unable to maintain or increase originations through the platform or if existing customers or inventory finance funders do not continue to participate on the platform, its business, results of operations, financial condition or prospects will be adversely affected. * If the scoring models and processes that the group uses contain errors or are otherwise ineffective, or if customer data is incorrect or becomes unavailable, the group’s business may suffer. * Any failure of the platform or the group's future platforms, software and technology infrastructure could materially adversely affect its business, results of operations, financial condition or prospects. * The group's ability to protect the confidential information of its customers and inventory finance funders may be adversely affected by cyber-attacks, computer viruses, physical or electronic break-ins or similar disruptions or faults with its systems. * The group may be unable to retain or hire appropriately skilled personnel required to support its operations. * The group’s success and future growth depend significantly on its successful marketing efforts, increasing its brand awareness, and its ability to attract new inventory finance funders and customers. * The supply chain financing market is competitive and evolving. * Unfavourable general economic conditions may have a negative impact on the results of operations, financial condition and prospects of the group. * The group may need additional financial resources to develop the platform for future success. * Uncertainties in the interpretation or application of, or changes in, IFRS or local GAAP could adversely affect the "derecognition treatment" for customers that comply with IFRS or local GAAP and accordingly reduce customers’ or inventory finance funders’ participation on the platform. * The ownership and use of intellectual property by the group may be challenged by third parties or otherwise disputed. === Risk factors specific and material to the ordinary shares === * Shareholders’ interests may be diluted by future issues of shares. * Prospective investors and shareholders should be aware that there may be possible volatility in the price of the ordinary shares. * A standard listing affords shareholders a lower level of regulatory protection than a premium listing. * Dividend payments on the ordinary shares are not guaranteed, and the company does not intend to pay dividends for the foreseeable future. * The group is subject to complex taxation in multiple jurisdictions, which often requires subjective interpretation and determinations. As a result, the group could be subject to additional tax risks attributable to previous assessment periods. * Changes in tax law or the interpretation of tax law, or the expansion of the group’s business into jurisdictions with less favourable tax regimes, could increase the group’s effective tax rate and in turn adversely affect its business, results of operations, financial condition and prospects. * There can be no assurance that the company will be able to make returns to shareholders in a tax-efficient manner.
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