I love the B2B e-invoicing and supply chain finance market.  It’s huge, global, fragmented, and full of contenders making a lot of noise:  Ariba, Tradeshift, Taulia, Prime Revenue, occasionally big banks, Obelisk, Demica, PowerTrack, Syncada, GXS, CASS, Bottomline, etc., etc. etc. Most observers expect some combination of software and banking to succeed, but finding that balance has been hard.  Banks generally stink at software, but no one trusts software companies with their money. Now we have a public company, Tungsten (LON: TUNG), who is trying to crack the code together  in a high-profile way.

Here is how Tungsten describes what it has done, so far, on its website:

On 16 October 2013, Tungsten Corporation was admitted to trading on the AIM market of the London Stock Exchange, raising gross proceeds of £225 million.  Tungsten’s market capitalisation on admission was £225 million.
Proceeds from the IPO will be used as follows:
  1. £73 million to fund the cash element of the acquisition of OB10 Limited, the leading global business to business e-invoicing network:
  2. £58 – £60 million to finance the acquisition of FIBI Bank (UK) Plc (subject to regulatory approval) and to provide solvency capital to support the invoice discounting activities of the Bank;
  3. £15 million for working capital and business development purposes; and
  4. £14 million to fund acquisition and transaction fees and expenses, with a further £2 million payable at the board of Tungsten’s discretion.
The Placing of £160 million represented the largest trading company IPO on AIM since 2008.

Tungsten’s strategic vision

The strategic vision of Tungsten is to create a leading cloud based global trading network, monetising the existing OB10 e-invoicing platform with the addition of value added services such as seamless electronically secure encrypted invoice discounting against “approved for pay” invoices, substantially reducing fraud and dilutions risks so evident in traditional “old model” supply chain finance; and the provision of spend analytics technology across OB10’s established network.
In other words, Tungsten is putting it all together itself–OB10’s e-invoice network, it’s own bank, and some cash thrown in for a new analytics tool and some marketing.  And it is all a public, pure play, on the London AIM.  Where I come from that is called “chutzpah”.  For many of you it is  better known as “cojones”.
The current market cap of Tungsten is about £235 with sales of about £20.  (I’m not sure how much debt or cash there is right now.)  The company is still trying to close the bank portion of the deal, so not everything is quite in place.
Now we get to sit back and watch and see if Tungsten can weave the three elements together (e-invoice network, bank and analytics) and how quickly.  The pricing looks expensive at 5-10x current revenue and no profits (after all, who needs profits–it is only year 13 for OB10).  But Tungsten really were to succeed, £235 million is a lot less than the eventual value SAP implicitly placed on Ariba’s network!
CASS, which owns a bank and has a semblance of an e-invoice network sells for an EV/Revenue ratio of a little less than 4x; TUNG is more like 8x.   CASS is more labor intensive, while OB10 a little more pure software. Having said that, CASS has 4x the revenue of TUNG and has almost 30% EBITDA margins.  The market clearly is betting TUNG will succeed.
Pass the popcorn!!
NB:  I do not own the stock and have not decided what to do.  Given my track record, that should have little bearing on your investment decision.  😉

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