British fintech Wise has hit the market. Should you invest?

Fintech company Wise – formerly known as Transferwise – listed on the stockmarket this week. Saloni Sardana looks at whether you should invest.

British fintech Wise (LSE: WISE) – formerly known as Transferwise – went public on Wednesday through a direct listing which valued the company at almost £9bn.

Wise ditched the traditional initial public offering (IPO) process and opted for a direct listing. So shares were able to start trading immediately. They opened at 800p and ended the day 10% higher at 880p.

The strong debut is a major win for the UK which has been trying to lure more tech groups to the country.

It also comes as a relief just a couple of months after Deliveroo’s mega flop IPO which was poorly received by investors due to concerns about the food delivery giant’s working practices.

The debut was closely followed by market watchers as it is one of the first UK fintechs founded in the wake of the 2008 financial crisis to go public.

As Wise took the direct listing route, the company did not raise any new funds; rather, existing shareholders, including Scottish fund manager Baillie Gifford, Tesla, and US venture-capital firm Andreessen Horowitz, sold a proportion of their shares.

The logic for this is simple. Companies that choose direct listings over IPOs as a route to go public – as Coinbase did earlier this year and Spotify did in 2018 – avoid having to pay high fees to the investment banks that normally act as underwriters in the standard IPO process.

So what is Wise?

Wise, known then as Transferwise, was launched in 2011 by Kristo Kaarmann and Taavet Hinrikus who were frustrated at how expensive it was to move money between the UK and Estonia, where both founders are from.

What began as a start-up has quickly expanded and now Wise is used by more than ten million people and businesses in 40 countries, moving more than £5bn across orders every month. The company claims to save its customers around £1bn a year compared to using a traditional bank.

One thing that distinguishes Wise from its peers is its profitability. It has been profitable since 2017 and has posted 54% compound growth over the past three years, with revenue climbing to £421m in its 2021 financial year.

This starkly differs from previous listings such as Deliveroo which was loss-making even before it launched its blockbuster IPO.

But is it all rosy, or does the company face any big risks?

The hurdles facing Wise

As lucrative as Wise is, it still faces many hurdles. It needs to make sure it meet the compliance requirements of every country it operates in, notes the Motley Fool.

“The company has rivals snapping at its heels in the revolutionary world of payments and to stay competitive it may be forced to cut fees faster than it can reduce costs. It has also noted that excessive volatility in currency markets could also affect its profits”, says Susannah Streeter, senior markets and investment analyst at Hargreaves Lansdown.

A bigger point of contention may be that the company has listed with a dual class structure. In other words, this gives the founders of the company greater control and enhanced voting rights, something that is likely to stir controversy.

Such a structure earned the distaste of investors during Deliveroo’s listing and contributed to a 30% drop in the food-delivery company’s shares on the first day of trading.

So should you invest?

The FT points out that Wise’s enterprise value (the total value of the business, calculated by adding the market value of a company’s equity and its net debt) is 50 times the company's forward earnings.

“That’s well ahead of the European payments sector average, even though revenue and profitability targets set out in Wise’s prospectus are towards the lower end of the peer group,” adds the FT.

Wise certainly stands out from other fintechs and companies. But it’s worth remembering that investing in new listings can be volatile, so it may be worth waiting to see how its stock price pans out.

Recommended

Ocado faces a “crunch” year – should you buy or avoid?
Share tips

Ocado faces a “crunch” year – should you buy or avoid?

Ocado was one of the big winners from the pandemic as customers moved online. But now it’s struggling, and losses are growing. So, asks Rupert Hargrea…
27 May 2022
What to buy as the tech-stock bull market crashes
Tech stocks

What to buy as the tech-stock bull market crashes

The decade-long bull market in tech stocks has come to a rapid halt. Investors need to distinguish solid stocks from speculative ones rather than just…
27 May 2022
Share tips of the week – 27 May
Share tips

Share tips of the week – 27 May

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
27 May 2022
Is it time to pick up growth stock bargains yet?
Investment strategy

Is it time to pick up growth stock bargains yet?

If you’re thinking of picking up some bargains from the tech stock crash, beware – there are still plenty of “growth traps” out there. John Stepek exp…
26 May 2022

Most Popular

Scottish Mortgage Investment Trust has fallen hard. But is now the time to buy?
Investment trusts

Scottish Mortgage Investment Trust has fallen hard. But is now the time to buy?

After a spectacular couple of decades, the Scottish Mortgage Investment Trust has fallen by almost 45% so far this year. Rupert Hargreaves asks if no…
26 May 2022
The world’s hottest housing markets are faltering – is the UK next?
House prices

The world’s hottest housing markets are faltering – is the UK next?

As interest rates rise, house prices in the world’s most overpriced markets are starting to fall. The UK’s turn will come, says John Stepek. But will …
23 May 2022
Is it time to pick up growth stock bargains yet?
Investment strategy

Is it time to pick up growth stock bargains yet?

If you’re thinking of picking up some bargains from the tech stock crash, beware – there are still plenty of “growth traps” out there. John Stepek exp…
26 May 2022