FDV just announce a Strategic Review.

https://www.marketindex.com.au/asx/fdv/announcements/3q-2024-trading-update-strategic-review-3A654509

Those words are usually a starters gun to head for the exits but probably not in this case...

Although share price going up 32% in a week suggests this info may have been well anticipated by someone.

It's a review of the business to "unlock and maximise shareholder value" most likely by spinning off the LATAM division.

This makes good sense to me. ASX is a strange market for that business and it's been there best performing segment for a while now.

They have alluded to this in the past and structured themselves for this potential a while ago.

The trick will be to sell / float it into the US when the market conditions allow them to maximise value. I expect they feel that moment is here, or approaching.

Disc: Held

Thinking about @Strawman's email this weekend and a call to highlight any Network Effect businesses - these are often the strongest source of economic moats.

FDV is the most obvious early Network Effect under construction I am aware of.

Networks

FDV own and operate Real Estate, Auto and General classifieds in a number of Emerging Markets.

Their recent AGM presentation summarises the current state of the business well -

https://www.marketindex.com.au/asx/fdv/announcements/2024-annual-general-meeting-presentation-3A642576.

They are #1 in all but one of their 14 markets.

They are run by founder Shau Di Gregorio, who is ex REA, and the board has plenty of digital classified experience too.

These are usually winner takes most if not all markets due to strong network effects – think REA vs Domain (but note that REA is probably not the best analogue for FDV, tempting though it is).

Bulls and Bears

The bull and bear case for FDV is closely connected – Emerging Markets which are a source of great opportunity and numerous risks.

Beyond the risks which include sovereign, currency, legal, there are some genuine benefits.

These economies are growing faster (though often not as consistently) than developed economies and are still digitising parts of their economies as telco infrastructure develops.

These markets also offer the potential for classifieds to offer transaction services, which FDV have started doing as the markets are not as developed (dominated by real estate agents) as in more established markets.

This should embed their competitive advantage and widen their margins over time if successful.

FDV is also diversified across 14 geographies in 3 regions meaning the recent political and economic disruptions in Myanmar and Pakistan have not had such a large impact on the overall business, allowing them to benefit from eventual improving performance in these markets, while competitors struggle.

The difficult operating conditions in its markets since interest rates started to rise appear to have strengthened its competitive position in these markets as weaker hands lost market share.

Exits

The LATAM business will probably be floated in the US at some point as this is a more natural home for it's value to be realised – this is the fastest growing and arguably best segment of the business.

The EMEA business will probably exit its largest business Zameem (Pakistan real estate) as the majority (70%) owner looks to list it. However the majority owners will likely delay this even further until stability has returned to this business.

These events will likely be catalysts for realised and unrealised value recognition.

Disc: Held

Just out @BigStrawbs70 - see here for details

https://newswire.iguana2.com/af5f4d73c1a54a33/fdv.asx/3A616127/FDV_FDV_successfully_completes_institutional_placement

They are using the funds to pay off earn outs from recent (LATAM) acquisitions.

That totals about $26m which they actually have in cash.

The Raise will put $15m in their bank account after they empty it on earn outs.

I was thinking (expect they were too) that their marginal CF break even status might get them there but it looks like they wanted / needed a bigger buffer and pulled the trigger.

Shame it's at such a large discount but they only raised a small amount, and less than 15%, so no need for an EGM / shareholder approval.

This will no doubt be a drag on the share price in the short term, even though there should not be a large overhang - it's just not a good environment for marginal break even businesses to raise cash - especially as they are growing fast in emerging markets... yikes!

Therein lies the opportunity?

Disc: Held.

@Bushmanpat I had the same question but reading between the lines I think Shaun has said as much as he can at this stage.

For Zameen, this decision is out of his hands as the fate of his 30% minority holding will be up to the other 70% owner's parent EMPG decision on their IPO of the whole business - of which Zameen is just one piece.

That said, Zameen was always the most promising piece but with the LATAM segment moving to 100% ownership and the new management structure in place, LATAM could well be worth more than Zameen before too long.

For LATAM's potential IPO, FDV are in the drivers seat as they 100% own that piece which they are now 'corporatising' to maximise internal cost benefits and external interest. Their announcement to the ASX on this was very promising but they did stress they there may not be a transaction out of this initiative.

If I had to guess I would say it's very market dependent. FDV have incentivised the new LATAM management to get revenues up about 3x to US$100m. If this can be achieved in the coming years and markets are stable / paying for longer term value this opportunity will probably create itself. So FDV have really just positioned themselves for this possibility now while there is no chance of a good transaction so come the time they can take advantage if the stars align.

@reddogaustin and @Strawman write ups covered the key points from the meeting very succinctly.

This meeting only reinforced my thinking that Shaun is a class act, aligned with shareholders, has a proven track record of execution on a proven business model. Although I am likely biased as this is a top 5 holing for me. That said, it will likely require a fair bit more patience yet.

Disc: Held.