Purple Group – more than just a brokerage business (EasyEquities)

The Purple Group, which houses crown jewel brokerage business EasyEquities, has been on a tear for the better part of two years. The tailwind was Covid-19, where an influx of retail investors ploughed into the market following the sharpest reversal in stock market history. 

But the Purple Group story is far greater than a brokerage business. Purple Group, via EasyEquities, has created a brand that consumers have come to love and cherish. It is the simplest low-cost investment platform in the country, making it a no-brainer for consumers looking to enter the market. EasyEquities is the chosen investment platform for at least 1.1 million clients (disclosed in its annual report for the year ended 31 August 2021) and is growing by 60,000 customers per month. Extrapolating that growth to where we are today, EasyEquities should have around 1.4 million customers. That is a huge customer base (and growing), in which to leverage off into other avenues. The success of its two latest ventures, EasyCrypto and EasyProperties, underpins this. The possibilities are limitless with a large customer base, with this scale ensuring a long runway for the Purple Group.

Management has done a shrewd job of partnering with some of South Africa’s strongest brands: Satrix, Capitec, Discovery, Bidvest and Telkom. This has been a catalyst and driver for growth and, as time passes, new partnerships will form to ensure persistent progress. Scale is critical for any financial technology business to succeed, and that’s what Purple Group is building. Leader of the Purple Group pack and a regular feature on BizNews, Charles Savage, has long said the business he and his team started 20 years ago is vastly different to what it is today. While the trading and derivatives unit (GT247.com) and the asset management arm (Emperor Asset Management) have been disappointments, the roaring success and outperformance of EasyEquities has meant the group as a whole has done well. The accomplishments of EasyCrypto and EasyProperties are likely to pave the way for future investment into other products. These products include EasyVentures, EasyFX and EasyInsure. The timeline and execution, at this stage, is largely unknown. However, as we’ve seen with EasyEquities, the overriding success of any one of the aforementioned opportunities will be rewarded greatly. The beauty of optionality.

In a complicated transaction, principal investor Mark Barnes sold a portion of his stake to Base Capital (previously Nire Capital), a business founded by Paul Rutherford. Paul previously held senior positions at Naspers and has an exceptional record investing in tech-centric businesses, according to Barnes.

As we’ve seen with Discovery and its sticky, loyal customer base – created by its core medical health and life insurance units – it paved the way for growth in other avenues (Discovery Bank, Discovery Invest). Purple Group’s future success will depend on the integration of its customer base to new products within its ecosystem. Scaling the EasyEquities platform to other jurisdictions is another opportunity; however, the brokerage industry is a very competitive landscape with margins being squeezed globally.

There are so many possibilities for Purple Group. However, even a high-level analysis of the financials (2021 annual report) suggests the core businesses are not generating enough cash to fund these prospects. They are doing well and will continue to do well as scale increases, but there will be few excess profits to invest in further projects (EasyVentures, EasyFX and EasyInsure). The business is building scale through its customers and Savage has clearly outlined that technological advancement and edge will be key to the entire ‘Easy’ ecosystem. The stars may be starting to align.

Yet, expansionary capital expenditure is expensive. A glance at Meta’s (previously Facebook) spending bonanza into the Metaverse is an example of this. Despite various conflicting opinions, it may turn out to be a stroke of genius by Zuckerberg. I believe Purple Group needs to raise money to fund these. This can be done in two ways; raise debt from lenders such as the banks or raise equity from shareholders. Despite Purple Group having a squeaky-clean balance sheet, I believe it would make more sense to raise money from shareholders. At a share price of R2.50, it gives the group a market capitalisation of R3bn. If the company raised R500m from shareholders via a rights issue – which would be more than adequate to fund future expansion – it would be small enough to allow most shareholders (of which the retail base is around 60%) to follow their rights, thus keeping their pro-rata shareholding. It would not be extremely dilutive and taking a long-term perspective will smooth the path for many exciting cash-generative operations, all centred on that sticky customer base.

The timeline and execution of the projects will have to be determined by Charles and his management team. The group’s tech-driven, client-orientated focus bodes well for exponential growth across all business units into the future, whichever avenues it targets.

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