Editing Supply@ME Capital

* Listed on the London Stock Exchange in the United Kingdom, Supply@ME Capital plc is a company that's on a mission to help businesses maximise their profits, in particular raise funds more efficiently.

* The flagship offering of the company is a web application that enables companies that are inventory-intensive<ref>Here, inventory refers to the goods and materials that a business holds for the ultimate goal of resale, production or utilisation.</ref> and willing and able to take higher levels of risk (for higher levels of return), such as early-stage manufacturing companies, to raise funds. What makes the finance platform unique is that it raises the funds by selling [and then at a later stage (e.g. 90 days), buying-back, at a higher price (than the sold price)] the inventory of the businesses, using a type of financial agreement called the true sale inventory agreement.<ref name=":8" /> Evidence suggests that the agreement enables early-stage inventory-intensive companies to raise funds more efficiently, ultimately leading the companies to improve/maximise their profits<ref name=":3">https://www.sciencedirect.com/science/article/pii/S0929119914001606</ref>.

* The expected return of an investment in Supply@ME Capital plc over the next five years is 411%, according to the estimates of Proactive Investors, which equates to an annual return of 33%. In other words, an £100,000 investment in the company is expected to return £511,000 in five years time. The main assumptions behind the estimate include: 1) a significant total addressable market size; 2) the uniqueness of the company's offering(s) and the experienced, founder-led team are able to capture a sizable amount of the market; and 3) a high discount rate, mainly given the stage of the business lifecycle that the company is in currently.

* The degree of risk associated with an investment in Supply@ME Capital plc is 'high', with the shares having an adjusted beta that is 561% above the market (4.61 vs. 1).

The idea of Supply@ME Capital plc came to Alessandro Zamboni, the now founder of the company, when he developed a strong desire to maximise the profits of his business (i.e. an early-stage inventory-intensive company). Researching into how to do that, he realised that one of the best ways is to raise funds (i.e. funding), in particular funding related to the inventory of a business (i.e. inventory-related funding).<ref>Huff, J. & Rogers, D. S. (2015) Funding the organization through supply chain finance: a longitudinal investigation. Supply Chain Forum: An International Journal, 16(3), 4-17.</ref> He also realised that there are many company owners that feel the same way as him, with profit maximisation one of the fundamental assumptions of economic (and business) theory. In his quest to maximise the profits of his business and others, Supply@ME Capital plc was born.

The mission of Supply@ME Capital plc is to help companies maximise/improve their profits.

==== Flagship offering/audience ====

 

 

 

 

 

=====What's a key solution to the problem?=====

The solution is Supply@ME, a web application that enables early-stage inventory-intensive businesses to raise funds. What makes the finance platform unique is that it raises the funds by selling [and then at a later stage (e.g. 90 days), buying-back, at a higher price (than the sold price)] the inventory of the businesses, using a type of financial agreement called the true sale inventory agreement.<ref name=":8" /> Evidence suggests that the true sale inventory agreement enables early-stage inventory-intensive companies to raise funds more efficiently, ultimately leading the companies to improve/maximise their profits<ref name=":3" />.

 

 

 

Currently, inventory finance is treated as a loan, involving interest (payments). Interest is considered to be a sin in Islam (Quran 2:278-279), and, therefore, Muslims should avoid engaging in transactions that involve interest. Accordingly, the current form of inventory finance excludes 1.97 billion people (or 25% of the global population). Because the finance on the Supply@Me Finance platform is structured in a way in which the inventory is actually sold (i.e. it's not treated as a loan, and, therefore, there is no associated interest), the platform is allowed to be used by Muslims (i.e. Muslim-permissible inventory finance platform). Indeed, the Supply@ME platform has been approved as being compliant within the principles of Sharia, Islamic law, thereby making the platform one of the first shariah-compliant inventory finance platforms.

A key way to determine an offering’s closest competitors is by looking at other offerings that are targeting the same or similar target audience (i.e. early-stage inventory-intensive businesses) and providing or aiming to provide the same core benefit (i.e. more/maximum business profits, in particular more efficient financing), and then ranking the offerings in terms of the total amount of time spent using and/or money spent purchasing the offerings. With that said, we view that the closest competitors of the Supply@ME platform are TraxPay, Demica and Novuna. A detailed comparison between Supply@ME and its main competitors are shown in the table below.

|Is the product targeted toward early-stage, inventory-intensive companies?

|Is the platform focused on providing financing (i.e. finance platform)?

|Does the product provide financing related to inventory (i.e. inventory-related financing)?

|Does the platform truly sell the inventory (i.e. true sale inventory finance platform)?

| style="background: red; color: white;" |No

| style="background: green; color: white;" |Yes

| style="background: red; color: white;" |No

| style="background: red; color: white;" |No

| style="background: red; color: white;" |High

| style="background: orange; color: white;" |Medium

| style="background: orange; color: white;" |Medium

| style="background: orange; color: white;" |Medium

| style="background: orange; color: white;" |Medium

| style="background: orange; color: white;" |Medium

| style="background: orange; color: white;" |Medium

| style="background: orange; color: white;" |Medium

| style="background: orange; color: white;" |Medium

| style="background: orange; color: white;" |Medium

| style="background: green; color: white;" |Low

Here, the total addressable market (TAM) is defined as the global finance arrangement market, and based on a number of assumptions, it is estimated that the size of the market as of today (27th November 2022), in terms of revenue, is $965 billion.

The serviceable available market (SAM) is defined as the global inventory finance arrangement market, and based on a number of assumptions, it is estimated that the size of the market as of today (27th November 2022), in terms of revenue, is $48 billion<ref name=":1">https://www.pwc.co.uk/business-restructuring/pdf/working-capital-report.pdf</ref>.

The price of the finance (i.e. the finance cost) is a key factor in the demand of the finance (and, therefore, the profitability of Supply@Me Capital). In other words, the lower the finance cost, the higher the finance demand, and vice versa. Consequently, we expect product development to be focused on just that (i.e. lowering the finance cost), as well as improving the accessibility of finance, in particular via the following main areas, in order of importance (from highest to lowest):

==== A suitably large inventory-related database and machine learning ====

A key ingredient to lowering the finance cost is inventory-related data. That is to say, the more inventory-related data to which an inventory-finance provider has access, the lower the finance cost (and, ultimately, the higher the finance demand). Accordingly, we believe that building a suitably large database of inventory-related data is key for the success of a company in the inventory-finance space, and, therefore, that’s where Supply@Me Capital needs to focus its energy. Indeed, a study by the International Monetary Fund (IMF) detailed that "the absence of comprehensive trade finance data posed a significant hurdle ... to make informed, timely decisions".<ref name=":2">https://www.imf.org/-/media/Files/Publications/WP/2019/wpiea2019165-print-pdf.ashx</ref> For us, therefore, a key milestone is the hiring of a chief technology officer (CFO) and senior data scientist (i.e. someone who has around five years experience with Python or another similar programming language), which we estimate will cost the company around >£100,000 per year each.

One key way to gather lots of useful information about inventory is to add sensors to the inventory and track the inventory over a communication network, such as the internet [i.e. via the Internet of things (IoT)<ref>The Internet of things (IoT) describes physical objects (or groups of such objects) with sensors, processing ability, software and other technologies that connect and exchange data with other devices and systems over the Internet or other communications networks.</ref>]. Indeed, the aforementioned IMF paper mentioned that the IoT will allow the real-time tracking of goods, which could become an important source of (big) data.<ref name=":2" />

==== Smart Contracts ====

Another way to lower the finance cost is to execute events (and actions) according to the terms of a contract (or an agreement) automatically, via something called Smart Contracts<ref>A smart contract is a computer program or a transaction protocol that is intended to automatically execute, control or document events and actions according to the terms of a contract or an agreement. The objectives of smart contracts are the reduction of need for trusted intermediators, arbitration costs, and fraud losses, as well as the reduction of malicious and accidental exceptions.</ref>.  

Evidence suggests that recording inventory-related information (i.e. inventory finance transactions) on a distributed ledger<ref>A distributed ledger (also called a shared ledger or distributed ledger technology or DLT) is the consensus of replicated, shared, and synchronized digital data that is geographically spread (distributed) across many sites, countries, or institutions. In contrast to a centralized database, a distributed ledger does not require a central administrator, and consequently does not have a single (central) point-of-failure.</ref>, such as blockchain, will result in inventory-intensive companies financing their inventory much more efficiently<ref name=":2" /><ref name=":4">https://www2.deloitte.com/content/dam/Deloitte/sg/Documents/finance-transformation/sea-ft-crunch-time-iv-blockchain.pdf</ref>, ultimately leading the companies to improve/maximise their profits<ref name=":3" />. Accordingly, for us, the implementation of distributed ledger technology is a key milestone.

==== Other types of finance ====

We expect that once the company has captured a large enough share of the inventory-related finance market (say 10%), the company will then move to other, broader areas of finance, such as non-inventory-related assets (such as accounts receivables) and the business as whole (i.e. business loans and equity).

As touched upon earlier in this report, we expect Supply@ME Capital to initially target Italy-incorporated, early-stage inventory-intensive companies.

The company has developed one of the first Shariah-compliant inventory finance platform, and, it, therefore, makes sense to target people who follow Shariah (i.e. Muslims). According to the 2016 World Islamic Banking Competitiveness Report, Saudi Arabia, Malaysia, United Arab Emirates, Kuwait, Qatar, and Turkey represented over 87% of the international Islamic banking assets.<ref>World Islamic Banking Competitiveness Report 2013–14 EY Global Centre of Excellence, Bahrain.</ref>

Nicola has more than 20 years' experience in balance sheet lending and cashflow finance, gained during her time at some of the UK’s most prominent banking institutions. Previously, she was Vice President and Head of Commercial Finance at Bank Leumi (UK) plc, where she managed a portfolio of companies with turnover of up to £1bn. Before this, Nicola served as Executive Director at Falcon Group UK, where she joined the newly formed UK inventory finance team. Nicola has also held senior, high-profile business development and relationship management roles at major banks, including BNP Paribas, The Royal Bank of Scotland and Bank of Scotland Corporate. Nicola joined the Group in September 2021 to take a leading role in business development, client onboarding and retention. She holds a BA in Business Studies from the University of East London.

|We estimate that especially given the experienced, founder-led team of the company, the peak market share of Supply@ME Capital is around 1%, and, therefore, suggests using the share amount here. As of 31st December 2021, Supply@ME Capital's current share of the market is negligible.

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%).

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.

We estimate that the expected return of an investment in the company over the next five years is 411%, which equates to an annual return of 33%. In other words, an £100,000 investment in the company is expected to return £511,000 in five years time. The assumptions used to estimate the return figure can be found in the table below.

|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. 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.