Wise is the world's cheapest, fastest, and most transparent FX provider with a long runway for efficient growth behind its existing advantage. The valuation is optically rich but objectively cheap.
1) I don't really get how you come up with 13x P/E? Wise market cap is currently at ~GBP 7B -with trailing GBP 354M they are valued at 20xP/E (not adjusted).
2) You don't mention Revolut as a competitor. From my research they are even under pricing Wise in FX rates (as they can cross-finance that from other income). Any thoughts on that?
£6.4b EV / £481m LTM Reported PBT = 13.2x. I don't know why you would count cash against them by using market cap instead of enterprise value.
Regarding Revolut. Maybe they are a competitor to Wise, but it has never been mentioned as a competitor in any of my calls or in the transcripts that are available with Wise's management team, former employees, Remitly employees, Western Union employees, etc. Also, because they are a bank they are legally not allowed to comingle assets in the way that Wise does with its treasury function. Each transaction crosses borders on a 1:1 basis. Maybe due to Revolut's tech-forward nature they can execute correspondent banking better than more traditional banks, but I don't know.
Thank you for this write up. I am a long time Institutional and Corporate FX professional having started my career doing FX for large corporates at banks. I have been the head of markets of a regional bank too. My main, infact only, concern with Wise is FX risk management. Wise takes on (Huge ?) currency risk as they credit the US bank account and debit the EUR bank account in USD and EUR at prevailing rates but don't actually do the conversion. So what happens when rates move against them a second, minute, hour or even days later ? If they get very regular and almost equal two way flow regularly during the day they can hedge the positions when they reach a market lot say - 500k or 1m USD. Do they do that ? What about illiquid and one way currency pairs because of capital controls one way like USD INR ? FX hedging is critical but Wise does not talk about it at all. I have read all of Wise's annual reports and have found NO, repeat NO information on their risk management. What is their VAR limit, how often do they hedge their FX risk, what are the controls in place ? There is absolutely no information on this. I have even written to them but I have not heard back. I am keen to invest but I cannot until I understand their risk management - this can make or break the business. Would you have any insights on this ?
I find 98 mentions to Risk Management in the 2024 Annual Report. They also provide regular updates across each of the annual reports to the status of their FX management capabilities and the most-recent upgrades to these processes. Also, the leaders in these risk management roles appear to be highly qualified.
The vast majority of those mentions are about ESG risk, governance and operational risk. The most relevent risk is FX market risk. They acknowledge that on page 72 but give no information on what the actual VAR limits and daily position limits are. Thats critical to understanding the business.
Okay but you mentioned in your first comment that there was no mention of risk management and I'm just pointing out that this term is prevalent throughout the entire document.
Regarding FX risk management in particular, I'm not sure why they would disclose granular details like that or why it would be helpful to an investment community for whom it would be a foreign language.
Generally, I can say from my conversations with former employees and through Tegus and Alphasense transcripts that this is something that they manage well.
Jake, the only real risk in this business apart from regulatory risk is FX risk. Thats what I meant. Have seen many banks, desks and even corporates blow up because of bad FX risk management. Remittance firms are not supposed to take big FX risk but to lay risk of on to the market. Wise takes on big FX risk. How big we don't know. What if they are running a 1 Billion USD/XYZ position that moves against them by 2% in a day and they decide to run it like Nick Leeson did hoping it will turn ? How can you tell that they won't blow up unless you know what the max VAR they are allowed to run is ? I am not saying this will happen but it is a very material and very real risk.
Have already done so twice. A couple of months ago. No response. My FX background is asking these questions. I think Wise mean well and are very good people. But I wonder if they know how much risk they run. They need a solid FX global markets banker who has seen firms burn down due to FX risk on as Head of Risk. For me I am putting this into my too difficult basket. Shame as I really wanted to invest
Nice write-up
Thank you
A fantastic analysis of Wise - thanks!
Thanks for reading!
Two questions:
1) I don't really get how you come up with 13x P/E? Wise market cap is currently at ~GBP 7B -with trailing GBP 354M they are valued at 20xP/E (not adjusted).
2) You don't mention Revolut as a competitor. From my research they are even under pricing Wise in FX rates (as they can cross-finance that from other income). Any thoughts on that?
£6.4b EV / £481m LTM Reported PBT = 13.2x. I don't know why you would count cash against them by using market cap instead of enterprise value.
Regarding Revolut. Maybe they are a competitor to Wise, but it has never been mentioned as a competitor in any of my calls or in the transcripts that are available with Wise's management team, former employees, Remitly employees, Western Union employees, etc. Also, because they are a bank they are legally not allowed to comingle assets in the way that Wise does with its treasury function. Each transaction crosses borders on a 1:1 basis. Maybe due to Revolut's tech-forward nature they can execute correspondent banking better than more traditional banks, but I don't know.
Thank you for sharing your research.
I'm long since september and feel pretty much the same as your thessis.
I also believe that the interest income returning to users is a strong growth engine (much like costco)
+ their glassdoor overall and ceo rating is good-great
so far the main downside imo is that im not so sure their future capital allocation.
company spends roughly 13% of ocf on buybacks and if it will become a true cash cow as it possibly can, these amount should be higher
Thank you for this write up. I am a long time Institutional and Corporate FX professional having started my career doing FX for large corporates at banks. I have been the head of markets of a regional bank too. My main, infact only, concern with Wise is FX risk management. Wise takes on (Huge ?) currency risk as they credit the US bank account and debit the EUR bank account in USD and EUR at prevailing rates but don't actually do the conversion. So what happens when rates move against them a second, minute, hour or even days later ? If they get very regular and almost equal two way flow regularly during the day they can hedge the positions when they reach a market lot say - 500k or 1m USD. Do they do that ? What about illiquid and one way currency pairs because of capital controls one way like USD INR ? FX hedging is critical but Wise does not talk about it at all. I have read all of Wise's annual reports and have found NO, repeat NO information on their risk management. What is their VAR limit, how often do they hedge their FX risk, what are the controls in place ? There is absolutely no information on this. I have even written to them but I have not heard back. I am keen to invest but I cannot until I understand their risk management - this can make or break the business. Would you have any insights on this ?
I find 98 mentions to Risk Management in the 2024 Annual Report. They also provide regular updates across each of the annual reports to the status of their FX management capabilities and the most-recent upgrades to these processes. Also, the leaders in these risk management roles appear to be highly qualified.
https://www.linkedin.com/in/chandnibhan/?originalSubdomain=uk
https://www.linkedin.com/in/arvind-guruprasad-b08b198/?originalSubdomain=sg
The vast majority of those mentions are about ESG risk, governance and operational risk. The most relevent risk is FX market risk. They acknowledge that on page 72 but give no information on what the actual VAR limits and daily position limits are. Thats critical to understanding the business.
Okay but you mentioned in your first comment that there was no mention of risk management and I'm just pointing out that this term is prevalent throughout the entire document.
Regarding FX risk management in particular, I'm not sure why they would disclose granular details like that or why it would be helpful to an investment community for whom it would be a foreign language.
Generally, I can say from my conversations with former employees and through Tegus and Alphasense transcripts that this is something that they manage well.
Jake, the only real risk in this business apart from regulatory risk is FX risk. Thats what I meant. Have seen many banks, desks and even corporates blow up because of bad FX risk management. Remittance firms are not supposed to take big FX risk but to lay risk of on to the market. Wise takes on big FX risk. How big we don't know. What if they are running a 1 Billion USD/XYZ position that moves against them by 2% in a day and they decide to run it like Nick Leeson did hoping it will turn ? How can you tell that they won't blow up unless you know what the max VAR they are allowed to run is ? I am not saying this will happen but it is a very material and very real risk.
These are great questions Garhwali. You should consider reaching out to their IR person for a call on this.
Have already done so twice. A couple of months ago. No response. My FX background is asking these questions. I think Wise mean well and are very good people. But I wonder if they know how much risk they run. They need a solid FX global markets banker who has seen firms burn down due to FX risk on as Head of Risk. For me I am putting this into my too difficult basket. Shame as I really wanted to invest
Nice write-up and analysis is very informative. Thank you!
One quick question- how is Wise different from traditional banks when they use partner bank network? Is it similar way to SWIFT(correspondent model)?
Much different. I describe that difference above. See the bit about the treasury function and how it differs from correspondent model.