Bailador Technology Investments Limited

ASX:BTI

Bailador Technology Investments Limited

ASX:BTI
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$1.250 (-0.4%)
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#31
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Reports (8) My Report Forum Investors
Forum Topics BTI BTI FY24 Results

Pinned straw:
Strawman
Added 3 months ago

The share price may have gone nowhere in ~3 years, and is down 13% from the 52-week highs, but under the hood you have a biz that continues to deliver in line with its stated strategy. Now I think about it, it's a contender for the "Companies improving without the market noticing" forum

Bailador is effectively a "public private-equity" operation. It allocates capital to private, early stage tech businesses with a view of delivering an attractive return on funds.

What makes it hard is that the value of their investments is difficult to know for sure -- value, after all, is in the eye of the beholder. So you really only have a good read when there is a cash transaction (otherwise it's whatever a valuer thinks it's worth). But given BTI's history, I think they have earned some credibility as a conservative appraiser -- moreover roughly half of their investments are now listed anyway (mainly Siteminder) so we dont need to guess for that part.

At any rate, their post-tax NTA per share grew 9.2% in FY24, after all fees. And this is in a tough environment for early-stage tech company valuations. Perhaps more telling is the combined revenue growth of all their investments, which clocked in at 47% over the last year. And 46% of their private portfolio now conform to the 'rule of 40' (Will Lopes from Catapult talks a bit about this, and it's a good sign of economic health, especially for SaaS-styled businesses). The businesses in question are, in the main, very high margin operations where >90% of revenue is recurring in nature.

And, perhaps even more telling, is that the actual cash dividends they are able to deliver to shareholders -- and the final div of 3.4c, fully franked, is a good signal. That gives them an annualised, grossed-up yield of 7.8%. As they point out in their presentation, in the last 3 years they have returned 22.4c per share to shareholders in cash -- roughly 19% of their current market cap.

I also find a lot of solace in their balance sheet, which remains in great shape. Their net cash balance represents ~30% of their market cap. Money, we hope, will be deployed intelligently should the right opportunities present themselves.

And over the last 12 months, they seem to be just doing that with $53m of capital deployed.

As they exit their investments, management have reiterated that there is potential for significant valuation uplift -- there's a huge gulf between carrying values and what (hopefully) could be realised upon exit as companies list or are bought out. And, importantly, realised in cold hard cash.

You'd be right in taking that with a large grain of salt, but these guys have form -- all cash realisations to date have occurred above carrying value, on average 39% higher. And every single 3rd party transaction to date (ie what other subsequent investors pay for a stake) -- all 34 of them -- have been at or above carrying value.

Still, it's the nature of their game that they will inevitably back a few losers, but you only need a few big wins to make things work out very well.

So at the current price you get to buy exposure to fast growing, unlisted companies at a significant discount to an already conservative carrying value. Bailador is profitable, well capitalized and has experienced and aligned management.

Shares probably need something of a catalyst before we see any material re-rate (maybe a strong exit), but at least you get a tidy dividend in the meantime.

Held.
Valueinvestor0909
Added 3 months ago

I agree with @Strawman here. I don't have any view on their private holdings and two public holdings they have SiteMinder and Straker ( I like SDR's prospects, not so much STG).

But I have seen many of Paul and David's interviews. They are both the kind of people I am willing to go along with. I have a small position so I could be biased.

They have significant shareholding as well

763b722fc2ebd68802c9f29bd44f4b6f53a6b2.png


23
stevegreenycom
Added 3 months ago

I see the skin in the game in a different context.

As small shareholders we cop a huge drag with annual management fees to whatever their decisions produce at the gross level. Now if their investing as good enough, at may well be worth it. To date it seems to me that their performance is fairy mediocre and volatile.

For their shareholding’s they face a different risk reward. Rather than this fee drag, they share the spoils. The difference on the two situations here can be significant and be the difference whether this is a good or bad investment.

Their shareholdings can also be used to block any activists forcing any changes.

If I was in their position I would probably own a lot of stock in it also. They also have the potential to get remunerated from being on boards of the investee companies. When I am weighing up buying this LIC I don’t have these same advantages.


23
Valueinvestor0909
Added 3 months ago

Those are excellent points @stevegreenycom . However, you can have most of these points apply to any founder-led business with a high percentage holding in that company. ( Instead of management fees, founders can draw high salaries -- same same but different )

BTI has outsourced its investment management to Bailador Investment Management Pty Ltd which charges a management fee and performance fee for their services.

  • Management fee = 1.75% of NAV per year + GST
  • Performance fee = 17.5%
  • Hurdle rate = 8%
  • Committed to paying 4% of NTA (pre-tax) per annum fully franked, paid semi-annually as dividend

8082c61c0fc88bbad397159d6aa95d18afc34d.png

Yes, their real performance ( in my opinion) should be measured from their exits - I believe they have performed well so far

  1. FY15 small exit in SiteMinder (45% above holding value)
  2. FY17 iPRO in voluntary administration ( decided not to further invest and facilitate an sale of assets or wind-up)
  3. FY20 another exit in SiteMinder ( effective IRR 51% or 21x multiple of its original investment)
  4. FY21 another minority portion exit in SiteMinder IPO ( 22.7 x its original investment)
  5. FY21 Sell of Lendi ( effective IRR 21% and 2.4 x multiple of investment cost)
  6. FY21 sell of DocsCorp ( IRR of 30% and 3.4 x multiple of investment cost)
  7. FY22 sell of Instaclustr ( IRR of 80% and 14.2 x multiple of investment cost)
  8. FY23 Sales in InstantScripts ( IRR of 64% )


In all of these transactions, they have to increase the carrying value ( except iPRO - which was writing its investment down to zero)

With this new dividend policy and history of exits, it does seem compelling

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stevegreenycom
Added 3 months ago

I am a bit skeptical about their track record. Admittedly I have not looked at this closely for many years, so happy if someone can correct me and paint an argument that they have invested well in the last decade.

I could have some of the details wrong but at a glance they listed almost 10 years ago at $1, they have grown the NTA to a bit over $1.70. Along the way they have paid out almost 20c dividends, which have occurred mainly in the last few years.

For now above I am being a bit kind arguably and putting the discount to NTA to one side, so thinking in terms of what they have achieved with the actual investing and NTA growth.

By no means a disaster and am sure they have beat a lot of fund managers, but if I am right that the IPO was in 2014, this track record is nothing to be too excited about, or is it?

It feels to me they have had a good environment for their strategy and should have done a lot better.

If shareholders at IPO had to sell now though the results would be a lot worse from the discount.

The presentations and NTA report I could find quickly seem to paint the picture that the track record only starts circa mid 2020, seems a red flag to me.

Discount is huge so could compensate, but management fees are also huge.

Management "skin in the game" appears more to me as a blocking stake to keep the LIC alive to their benefit. Sol Patts involvement is strange to me. Not inconceivable they could want to take it private, but they have been a shareholder since the early days so wonder if they would have done so by now if they were really interested? Maybe the small size of it does not excite them too much to do so.

As a bit of background from memory I think I may have held this stock in 2019 just for a few months only for a flattish result or 5-10% loss I think.

25
stevegreenycom
Added 3 months ago

With regards to Sol Patts involvement from a long time ago, they got an underwriting fee out of it, and were able to take up a lot of shares at a big discount to NTA in 2016.

20160331_BTI_Underwriting_ASX_Announcement.pdf (bailador.com.au)


18
ArrowTrades
Added 3 months ago

Solid post @stevegreenycom some good points to consider.

12
PeregrineCapital
Added 3 months ago

I agree with @stevegreenycom


Don't worry about all the exits and success stories, even if you take NTA growth + dividends the performance really isn't that good, especially on a risk adjusted basis (maybe what, 8% p.a?). If you take SP + Dividends performance has been awful.

Don't really care about the history of successful exits, just focus on the scoreboard and they've still got a lot to prove.

24
mikebrisy
Added 3 months ago

@Strawman you make a good case. In addition, presumably, if we see more capital flowing into small caps and falling interest rates, we could see a major re-rating here - a small-cap investor in small caps, with a good track record of capital allocation? It's an obvious pick if you wanted small cap exposure.

I've looked at $BTI several times and I find it very attractive. The only thing holding me back is my preference to hold operating businesses, where I can get immersed in the details of the business, its market, products, customers and competitors. I guess I prefer the process of investing over actually making money!


28
Strawman
Added 3 months ago

I'd argue that one follows the other @mikebrisy -- if you enjoy the process, you'll inexorably get better at it, and the profits will be an inevitable outcome!

But I do take your point. Bailador is essentially a bet on the investing prowess of the team.. and even good operators tend to stumble from time to time. And they can't do much to control deal flow, market sentiment or the state of capital markets.

But I do rate them, and the cash balance and NTA discount offer a bit of a safety net.

27
Tom73
Added 3 months ago

Great analysis of BTI @Strawman , to me it boils down to a jockey play as you note their very good track record and skin in the game. In addition, a good solid margin of safety, up until the recent acquisitions the market cap was 1/2 cash, 1/2 listed securities, both able to be valued and anther 1/2 in unlisted securities... so it was 1/3 undervalued or fair value if you valued the unlisted at zero!

A very simple investment thesis and analysis for this one for me...

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