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.


How rising interest rates could hurt big tech stocks
Tech stocks

How rising interest rates could hurt big tech stocks

Low interest rates have helped the biggest companies to entrench their positions. But what if rates rise?
25 Oct 2021
Airtel Africa has growth on speed dial. Here's how to play it

Airtel Africa has growth on speed dial. Here's how to play it

Mobile-phone group Airtel Africa is cashing in on the rise of the continent's digital economy and looks set for years of rapid expansion, says Matthew…
22 Oct 2021
Share tips of the week – 22 October
Share tips

Share tips of the week – 22 October

MoneyWeek’s comprehensive guide to the best of this week’s share tips from the rest of the UK's financial pages.
22 Oct 2021
Whistleblower allegations – where now for Facebook?
Tech stocks

Whistleblower allegations – where now for Facebook?

Facebook has come in for some fierce criticism after revelations from a former employee. Just how much damage has been done?
16 Oct 2021

Most Popular

Properties for sale for around £1m
Houses for sale

Properties for sale for around £1m

From a stone-built farmhouse in the Snowdonia National Park, to a Victorian terraced house close to London’s Regent’s Canal, eight of the best propert…
15 Oct 2021
How to invest as we move to a hydrogen economy

How to invest as we move to a hydrogen economy

The government has started to roll out its plans for switching us over from fossil fuels to hydrogen and renewable energy. Should investors buy in? St…
8 Oct 2021
Emerging markets: the Brics never lived up to their promise – but is now the time to buy?
Emerging markets

Emerging markets: the Brics never lived up to their promise – but is now the time to buy?

Twenty years ago hopes were high for Brazil, Russia, India and China – the “Brics” emerging-market economies. But only China has beaten expectations. …
18 Oct 2021