LATEST REPORT ON FCNI ISSUED TODAY BY RESEARCH GROUP
Special Report Post
****Special Report**** Vol. 1, No 18, December 1, 1999
analystgroup.com initiates its coverage of The Financial Commerce Network, Inc. (OTC BB: FCNI) with a "buy" rating
The Financial Commerce Network, Inc. (OTC BB: FCNI)
Recent Price: $1.50
52 Week Range: $0.75 to $8.625
Daily Average: 20.3 K
Outstanding shares: 20.0 million
Float: 5 million
Market Cap: $30 million
Projected Revenues (next 12 months): $10 million
Held by Insider and Management: 75%
Rating: Buy
6-month Target Price: $5-$6
Company Website: TFCN.com
Company's Business Background:
The Financial Commerce Network, Inc. (TFCN) was created in order to meet the needs of high net worth individuals and institutions. TFCN offers a revolutionary way of trading by bringing professional trader capabilities online. TFCN's mission is to offer , at a single location, a broad array of sophisticated products and services previously only available through a private banking relationship. Using Internet technology, TFCN will be able to provide its members with a wide mix of products. However, members will not have to compromise their service requirements because they are trading online. TFCN will maintain a superior level of high-touch service by phone and by e-mail 24 hours a day, seven days a week.
In addition to its wide range of products and services, investing through TFCN offers another unique advantage. Because TFCN is trading on a wholesale basis at large volumes, its fees and commissions are significantly lower than those found elsewhere.
TFCN models itself as a "Private Club" offering its select members an array of value added services typically only available through a private banking relationship. TFCN provides both state of the art trading with its financial information services portal and its services for non financial transaction services. Represe nting a new level of innovation towards sophisticated and active investor by expanding the offerings of current online investment sites, such as: Wit Capital, Merril Lynch, and Ameritrade.
The Market
The fact that Merrill Lynch will charge $29.95 for on-line stock trades is your clue to the future of the U.S. retail brokerage industry. Brokers have finally become a commodity, like gasoline at $1.259. Nothing with any exclusivity sells that way.
Wall Street's fear back in 1975 was that the end of fixed commissions would lead to unbundling, the separation of basic trading from research, advice-giving and other expensive and profitable services. It took 25 years--and a revolutionary new communicat ions technology--but it has finally happened. The movement to shorter settlement schedules, extended trading hours, wider global access to U.S. markets, the continued increase in equity ownership, the advent of broadband Internet access, the access of real-time financial information, and lower transaction costs are expected to drive volumes as markets go forward. Equity market volumes are exploding and we expect the trend to continue.
The Internet is a catalyst that is very likely to produce the greatest changes ever in the way American consumers access and select financial services products; online brokers are uniquely positioned to benefit from these changes. According to Forrester Research, only about 50% of U.S. households will have access to PCs by the end of 1999. According to Cerulli Associates, of those households with PCs, about one-third (33%) are online. There still remains strong potential for growth within the United Sta tes. Another data resource firm, International Data Corporation (IDC), estimates that the number of Internet users in the U.S. will increase from 56 million at year-end 1998 to more than 137 million by the end of 2002. Additionally, IDC expects the numb er of investors online to increase from 5.6 million in 1998 to 22.7 million in 2002. IDC data also points out that 6.9% of Internet users traded online in 1997 and forecasts this number to rise to 16.5% by 2002. According to IDC, the number of online ac counts are currently more than 14 million, representing a CAGR of 41% over the past two years. Also, IDC data forecast that the number of online accounts are expected to increase by a CAGR of 48% from 1997 to 2002. If we apply a relatively conservative e stimate of 25% CAGR, on our 14 million base for the next three years, we could reach 27.3 million accounts by 2002. According to the AOL/Roper Starch Cyberstudy, there is also tremendous potential for future online trading activity. For example, among o nline consumers aged 50 and over, only 11% trade stocks online while 43% track their portfolio online and 42% research stocks via the Internet. For consumers aged 18-24, 6% trade online, while 10% track portfolios, and 23% research stocks online. Furthe rmore, the longer the consumer spends online the more likely he/she is to trade online. For those customers who have been online for less than a year, about 4% of them reported that they have traded stocks online. This percentage increases to about 18% f or consumers who have been online over three years.
In the past four years, online trades as a percent of total trading volume have gone from a rounding error to 14% of all stock orders and 30% of the volume on NASDAQ and the NYSE (according to The Industry Standard). According to this research, the numbe r of online investors was 5.2 million at year-end 1998, increasing by 2.2 million (or 73%) in 1998 alone. Because of the tremendous reach of the Internet, online brokers can target a boundary-less audience. Since online trading rarely requires human int ervention, online brokers are tearing down the geographical and üpersonal touchý advantages that traditional brokers have long enjoyed. Forrester Research estimates that under 10% of households with brokerage accounts engage in online investing, suggesti ng that online brokers have gigantic growth prospects ahead. Forrester estimates that online customer assets will exceed $1.5 trillion by 2003 ð a 5-year CAGR of 15%. In ZDNetûs1Q99 InternetTrak survey, 12.8 million respondents indicated that they are ü very likelyý to trade online in the next three months ð a 47% increase versus last quarterûs survey. Further, 4.5 million people said that they are likely to open a brokerage account with an online broker in the next quarter ð an increase of 119% versus last quarterûs survey. Of the 44.4 million stock-owning U.S. households, only 4.3 million were trading online in 1998, less than 10%, according to Jupiter Communications. This number is expected to reach 40% by 2003. The online brokerage market is undeniably large and, more importantly, growing rapidly.
Management Team
FCNI has superior management. Management has proven experience in generating revenues and earnings through both organic growth and acquisition.
Richard H. Bach, Chairman and CEO. In January 1996, Mr. Bach acquired control of Alexander, Wescott Holdings, one of major market makers in OTC BB, and was responsible for growing the firm from approximately $500,000 in revenues to in excess of $7 milli on in 1998. During his career, Mr. Bach has also served as President of Trauber, Bach & Co., a registered broker-dealer specializing in third-market and institutional executions, and as President of Investors Financial Services, a floor trading operation and member of the Commodities Future Trading Commission and the National Futures Association.
Carl R. Walston, President. Prior to joining Alexander, Wescott as President in 1996, Mr. Walston had served as Executive Vice President and Director of Cadre Consulting Services, a fund administrator and SEC registered investment advisor, from 1985 to 1 994, and as CEO of four operating companies of the Deak-Perera Group between 1978 to 1984. During his career, Mr. Walston has also served as a member of the Executive Committee and the Board of Directors of Walston & Co., Inc., one of the nation's large st retail securities firms for over two decades.
Brian Kelly, Chief Information Officer. Mr. Kelly's expertise in financial services technology spans three firms over a 12-year period. His areas of responsibility have encompassed Internet applications development, including management of online account access development, content development and maintenance, staffing and training, site infrastructure, legal and compliance oversight, strategic planning, and operations support, as well as th e development of a network-based broker order entry system-one of the first in the full-service financial services industry. Prior to joining TFCN, Inc., Mr. Kelly served as Vice President of Applications Development at Shearson Lehman Brothers, Vice Pre sident of Interactive Systems at Smith Barney and the Director of Internet Strategy and Development at Prudential.
Todd M. Nishet, Director Chief Operating Officer. Mr. Nishet will lead the company internet technology division. Prior to joining TFCN, Mr Nishet served director as Internet Technology for Prudential, a division of Prudential insurance company of Americ a. Mr Nishet also worked for AT&T, where he developed and launched WorldNet Service, which transformed into the largest single internet service provider. During his career, Mr. Nishet served as a Marketing consultant advising some of the various largest financial service companies including American Express, Chase Manhattan Bank, Swiss Bank, and Citigroup.
Summary
The industry is highly competitive. Merrill Lynch's strategy shift legitimizes online investing, but it is also likely to push industry rivalry in the online brokerage space to new heights as more traditional brokers join the competitive fray. However, we believe TFCN has well-positioned itself in order to capture share in this fast-growing industry.
To succeed in the Internet era, retail brokerage firms must give investors more and better choices, value, convenience, and speed. TFCN is taking online trading and financial services to a higher level of sophistication and customer service. A recurring revenue stream has been acquired with the purchase of NASD broker dealer Alexander, Wescott. Furthermore, TFCN services offer many advantages over its competitors:
- Access to Private Placements, secondary offerings and hedge funds.
- No Commission Block Trading (over 10,000 shares).
- Prime Brokerage accounts which will consolidate all brokerage
activities into one account. Whether you have money in one brokerage firm, and another funds in other firm, TFCN can consolidate all the activities into one account. - Self-Directed trade routing to reach multiple markets and ECNs.
- Provides REDI-PLUS a system which is much better poised the Omega Station. Given for Free to TFCNs users for Trading. Provides Free Real Time quotes, charts, news, and even trends that tells you the buying or selling signals before the market action. I ts computer generated system which catches the up and down trends for stocks and the market.
In our opinion, based upon the current stock price level, we believe FCNI stock should be purchased by investors associated with the Internet stocks. Online brokerages typically trade at a market valuation of 10x-12x projected sales and, therefore, FCNI appears to trade at a deep discount to its peer group. Over the next 6 months, we are projecting a target price of $5-$6, or 10x-12x projected sales, based on 20 million shares outstanding.
We view FCNI as an excellent growth company with exceptional potential for capital appreciation over both the immediate and longer term. As industry and investor awareness of FCNI increases and acquisitions are announced, FCNI's shares should move much h igher in the coming months. On November 9, the Company filed Form 10-SB with the SEC and is expected to become a fully-reporting company by the end of 1999.
Technical Analysis
The stock has been severely beaten down over the past 6 months after trading over $8 a share last May. Given this tremendous oversold, severely undervalued situation, we see substantial appreciation potential of the stock price both from revenue growth a nd increased recognition. This could be multiplied if investors come to realize that the company is going to be involved in this extremely high growth industry: online broker.
Last May, the stock peaked at $8.625 per share. Since then, the stock price has been declined as the company underwent major developments. During the past 1 months, trading activities suggest that an accumulation is going on and the stock price is slowl y moving up. We believe this as an accumulation/consolidation phase of development prior to an upward movement in price that could occur as the Company's business plan materializes this year.
Investment Opinion
We believe the stock is highly attractive to speculative investors and therefore rate this stock a buy. We believe that FCNI story has not yet come out and come to the attention of the investment community. It's grossly undervalued when we consider its huge potential in the emerging and rapidly growing industry. We believe the company is well-positioned to take advantage of the changes that the Internet is creating in the retail financial services industries. We believe these changes are still in their earliest stages, affecting primarily the retail brokerage industry to date. In other words, we believe FCNI is situated nicely to ride the wave of change we see pouring over the relatively inefficient and traditional financial services industries.
We don't see much downside for the stock which is traded around $1.50 now. We believe the stock is an outstanding investment opportunity and is at an excellent buying price considering its short and long-term potential. Our 6-month target price is $5-$ 6 with a "buy" rating.
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As a suggestion, "Never, ever, make an investment based solely on what you read in an online newsletter or Internet bulletin board, especially if the investment involves a small, thinly-traded company that isn't well known," said Nancy M. Smith, Director of SEC's Office of Investor Education and Assistance. "Assume that the information about these companies is not trustworthy unless you can prove otherwise through your own independent research." "Internet Fraud" is available on the SEC's Web Site, at sec.gov .
This investment has appeal because of the high quality of the management that have been drawn from such firms as Goldman Sachs, NY Stock Exchange, Walston & Co, Prudential, Knight's subsidiary Trimark etc.
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