Official stat results released today, most of the information was released in the 4C at the end of January, but we get more details and the statutory numbers – which are an accounting nightmare that reflects the consolidation of so many international businesses (par for the FDV course).

Result Summary:

·        A$14.8m cash, +A$3.7m Operating Cash Flows Vs -A$2.5m FY22, positive in all 4 quarters.

·        $A67.9m Statutory Revenue +15% YoY driven by 15% growth in 360 LATAM, but $80.6m Operating Revenue (with associate share) -5% due to -55% fall in Zameen.

·        $A4.8m EBITDA (inc Associates), up from A$37k in FY22

·        -$A8.9m NPAT (Attributable) inline with -A$8.9m in FY22, note H2 was a profit of A$1.3m but a favorable A$4.1m Associates FX compared to unfavorable -A$5.8m in H1 was key swing factor HoH.

·        EPS loss reduced to -A$2.06 from -A$2.70 due to share count increase from 378.6m to 433.2m shares following a 23.2m institutional placements (5/4/23) and 9m for SPP (11/5/23) during the year to fund contingent consideration for the prior year increase ownership in 360 LATAM businesses to 100% (InfoCasas and Encuentra24) also 21.3m shares issued as part of the payment for the earnout (2/6/23).

·        $A64.3m Operating costs (ex-dep) up slightly from A$63.9m driven by higher Offline production costs (4.5m) offsetting headcount savings (3.2m).

·        $A7.8m A&D down from A$10.8m mostly due to A$2.3m of Customer lists being amortised in FY22 and none in FY23. Not sure what’s happed here, page 2 has the only comment that I don’t follow as a reason for a drop in FY23.

·        -A$1.5m FX loss Vs -A$0.3m LY, normally I would ignore FX but it’s a core part of FDV.

·        CEO Shaun Di Gregorio share count up 51k to 37.260m but ownership down 9.8% to 8.6%

·        10 page remuneration report Vs 9 pages last year. Director and KMP remuneration up from A$1.375m to A$1.415m (2.9%) without personnel changes.

Other observations:

·        Last year the focus of the presentation was the Operating Revenue +37% driven by Zameen, this year it focuses on the Statutory Revenue +15% which excludes Zameen. The directors report in the accounts does the same thing, changing focus from last year… No Like!

·        FDV Asia entities are not fully owned like the 360 LATAM and MENA groups, which complicates results as they are consolidated if over 50% held and equity accounted if under. Zameen is currently the only material part of this group which is equity accounted for so relatively clean, but this leaves FDV’s value linked mostly to 360 LATAM, which is currently doing very well – something to keep note of… Look like they have picked winners.

·        Note 7 on Income taxes implies A$19.7m in unrecognised Deferred Tax Asset on the basis that it is not probable that sufficient taxable income will be generated to utilise the future deductions. The complex entity structure for tax purposes leaves me concerned that prior losses will not be fully utilised against future profits which has a material value impact.

·        I need to understand more how the Offline Production Costs scale and how this may differentiate the model from REA in Australia if at all. Current EBITDA% assumptions for valuation are well below REA so the margin of safety more than covers this issue.

The only additional information that may change my valuation of a few days ago is the tax situation, but not enough to change my decision to commit to FDV.

Disc: Own IRL, adding to SM

I haven’t had the chance to go through the quarterly report in huge detail but I gleaned that FDV was operating cash flow positive overall and in each of the regions over the last year.

they also reported a nearly 10 mil loss for the half year which was down to ?investment costs?

whilst the big picture appears to be one of a business on the cusp of the transition from loss making to profit making I haven’t had a chance to work out why they are still burning a lot of cash despite being operating cashflow positive… someone wiser than me care to shed some light?

I also intend to get to this podcast released yesterday in small caps:

https://podcasts.apple.com/au/podcast/small-caps/id1490977815?i=1000644199620

I note a 14% rise in SP today on no news… perhaps it was a late response to your valuation @Bradbury

https://podcasts.apple.com/au/podcast/small-caps/id1490977815?i=1000635742669

a nice little chat about progress and potential for the future.

Annoucement

The Good

• 9% QoQ increase in total revenue to $21m - $58.4m YTD. 

• 35% QoQ increase in EBITDA to $2.3m - $5.7m YTD

• Positive operating cash flow of $890k and free cash flow of $272k which led to a marginal improvement in cash position to $15.4m. Third consecutive quarter of positive operating cash flow.

• Operating expenses continue to remain flat

• General improvements shown across most of the groups business’s

The Not So Good

• Reported web metrics are flat over the previous quarter which may be a bit of a leading indicator for growth in the operating regions. These have only been reported over the last two quarters so it may be a little early to draw any inferences from these metrics

• Zameen revenues improved slightly, however EBITDA was down QoQ. (This result was impacted by currency appreciation) 
• Yappo (LATAM) and PropertyPro (MENA) also had ongoing EBITDA declines over the quarter.

Watch Status

What To Watch

• Q4 will require 14% total top line growth to match FY22 revenue which will 
• Improving operating margins mean that EBITDA is currently on track to exceed FY22 and deliver positive operating cash flow for the year.
• Roll out of Iris into wider LATAM markets expected to generate new revenues. This will show up in the “Other” revnue category in future reports.
• Avito has become the strongest performing brand by EBITDA. One off?

https://hotcopper.com.au/documentembed?id=uOMxKKzFkiWRTLKhOROKAxjvSTYM4Qq6yhCZpvNvke92GA%3D%3D

I haven't been following these guys super closely, but it looks like an okay result. There is still some minor revenue growth, with other metrics improving.

Their share price is sitting below what it has been for almost all of the last 5 years.

I think a key question is how they are doing compared to their competition in the respective countries they operate. I have no idea.

FDV Capital Raising History

Raised to date $221.9m, todays market cap at $0.39 is $168.9m 

·      April 2023 Raised $17.1m, $13m institutional placement, $4.1m Retail at $0.677 per share

·      Dec 2021 Raised $53.9m, Institutional A$35m, Retail $18.9m at $1.50 per share

·      October 2020 Raised $100m, A$92.6m Institutional, A$6.5m Retail at $1.25 per share

·      July 2020 Raised A$6.5m strategic placement form institutional investor based in North America at issue price of A$0.975 per share

·      May 2018 Raised A$14.4m ,A$11.2m Institutional, A$3.2m Retail at $0.65 per share

·      IPO August 2016 Raising $30m at $0.50

Announcement

The Good

• New branding for 360 LATAM and MENA Marketplaces indicate long term business building strategy by separating from the FDV name.

• The split of revenue type for each group was reported this quarter. If this metric is carried forward it will make tracking management’s focus on increasing transaction revenues easier.

• Although total revenue for Q2 was down YoY, overall EBITDA had improved which demonstrates that the focus on cost control is showing.

• $15m in cash remaining at the end of the quarter after earn out payments have been completed. Q2 was marginally operating cashflow positive for the second consecutive quarter, so this balance should be enough to fund the next stages of growth.

The Not So Good

• Zameen continues to struggle with revenues falling 32% QoQ from $3.65m to $2.45m and 64% YoY from $6.81m in Q2FY22. Management have indicated that revenues had started to show signs of improvement. Some of the improvement has been masked by the improving rupee.
• Total group revenue for the quarter of $19.2m, which is an improvement on Q1’s $18.2m but when annualised out to $76.5m is still down on FY22’s revenue of $82.3m. This shows how significant Zameen previously was to the business even with as the rest of the business’s continue to improve.
• While the operating groups are improving, the rate has been fairly slow compared to the targets indicated by management for LATAM. Also, most of the growth in the 360 LATAM group comes from changes in exchange rates. The only business with noticeable YoY growth was Encuentra24.



• This quarter's update is quite promotional compared to previous updates dedicating a slide on comparing the current share price to the IPO price. While share price ultimately matters as a holder, I’d rather the quarterlies focus on the business.

Watch Status: Cautious

What To Watch

• Improvement in Zameen revenues from May to June was flagged by management. With the macro situation improving this improvement should continue.
• Fincaraiz B2C revenue stream expected to contribute to growth in coming periods (Carried over from the previous quarter - No significant change this period)
• Continued growth in transaction revenue. This currently makes up ~26% of total revenue.. (Carried over from the previous quarter. Note this can now be tracked if the revenue splits reported this quarter remain)

I listened in to the FDV 2023 AGM and it was good to hear the CEO and Chairman give some updates. They didn't really mention anything that isn't already known from previous quarterlies. What I took from it is that nothing problematic is going on under the hood and that they are happy with the underlying performance of the buisness.

Bot the Chairman and CEO are on the board of Zameen and they said that it is doing very well given the difficult operationg conditions in Pakistan and that it has enough cash on its books to get through the crisis -- similiar to the recent observation @JPPicard made about Zameens LinkedIn feed.

They did get a few strong questions about the recent Cap raise and why they didn't raise more at the last raise when the SP was $1.50. They answered that the advice they had at the time was not to raise more money than they needed. I think there is a bit of hindsight bias in these questions, as no one would be complaining if this raise was done at $2 vs 0.44c. I give them a pass on this, given it was a small raise that was needed to fund the LATAM contingent payments that were due.

They were also asked whether they raised enough money to see them through to profitability. They said they have enough cash in the buisness and that excluding future M&A activity they do not see a need to raise any more money. They said they don't have any active plans for acquisitions but are open to good opportunities if they become available.

The IPO of Zameen was asked- this is still a focus and is in progress but it sounded like the Pakistani credit crise will need to be resolved first and normal operations and broader confidence rebuilt before action on this will occur.

I asked about the FDV LATAM corporate costs and why they are excluded from their headline numbers. They said they are roughly $1m/yr (just realised that I am not sure which currency though, probably $AUS) and they have kept them out of the EBITDA numbers to make the underlying time series comparisions easier for investors. I am not a big fan of this, given that they have consolidated the region under a central management team and this is an ongoing expense of the buisness I would prefer these be included in the headline numbers. Anyhow will be easy enough to add this back in to the EBITDA numbers in the future.

I am still happy to back Shaun and the team to deliver and I don't think much has really changed apart from the SP. I choose not to participate in the SPP as my view is that the SP is more likely to go lower in the short term and I am expecting some decent tax loss selling and a better top up point in early/mid June.

I'm pretty happy with the progress FDV have made in 2022 in both revenue ($82m) and EBITDA momentum.

FDV LATAM is the clear standout and the consolidation of this area and new management team seems to be having a good outcome. Revenue up 48% to $45m. EBIDTA of $2.1m up from $1.1 in 2021. InfoCasas and Encuentra are the main drivers of this and are following the same trend of Zameen just a few years behind. Fincaraiz and Yapo were more stationary but commentary suggests these have been improving from the start to the end of the year and and should be better in fy23.

FDV asia was a solid contributer, mainly centred on Zameen but many of the others showed good revenue growth rates if off small bases. AUD conversion rates are reducing the benefits from this region.

FDV MENA smallest contributor in terms of revenue ($8.5m) and still lagging the other regions with negative EBIDTA of $0.8m, but generally moving in the right direction and had positive cashflow in the 4th quarter.

Cash burn of $1.8m for the quarter but still have $26.9m of cash available.

It looks like they have 3 clear winners now - Zameen, InfoCasas and Encuentra and several maybes. It is a pretty good strikerate and happy to keep backing Shaun.

FDV’s business model of targeting underpenetrated emerging markets with classifieds/marketplace platforms remained resilient during a difficult 2022, as seen via 3QTD revenue growth vs. pcp of 38.1% to $112.9m (100% basis). FDV also achieved positive EBITDA in all operating regions (ex. MENA one-offs) for the first time during 3Q22 in addition to Asia and LATAM regions operating on a cash flow positive basis during 1H22. FDV remains catalyst rich owing to its private equity-style portfolio management, noting FDV LATAM was recently valued at 5.0x CY22e revenue and portfolio crown jewel Zameen generated a likely valuation uplift following a funding round by its majority owner, EMPG, with both assets flagged for listings down the track. Although the operating environment remains uncertain, a China re-opening and tapering/pivot of US interest rates would potentially be a positive for performance in emerging markets.

Buy (Speculative), Valuation $1.23 page 5

A big thanks to @Strawman for intelligently rewording my many questions! I think most of them got answered in one way or another! I dialed in to watch the first 50 mins, however was called away to an 'unscheduled-waste-of-time-meeting' and so missed the end! However I have re-watched tonight - huzzah!

My takeaways from the meeting include:

• Helps to think of FDV as a VC. They behave like a VC, then an owner/operator, then VC seller (as one option).
• Emerging Markets (EM) are structured that the "number-1" business is THE winner. So if FDV owns the number-1, it is half the job done.
• FDV avoids EM where there are large incumbents that FDV cannot buy control of the number-1 company. I need to do more research and confirm the cross over for NASDAQ: MELI for the LATAM markets.
• Shaun implied that all the number-1's in EM had been "found", and that M&A was less likely at this time.
• Portal brands in EM become a self made regulator for their geographical area, and they create immense trust between a seller and buyer. This point cannot be overstated enough in my opinion, and this is why FDV's EM Model of search and discover to connect and sell has so much value, and how can be underappeciated by western analysts whom miss the differences between how we transact a house/car sale, vs two individuals in an EM.
• This next one I knew, 90% of the traffic comes from mobile devices, not large devices (like laptops), as I knew EMs often skip fixed internet infrastructure and go straight to mobile towers (as they are easier to rebuild/maintain after each coup!). What I didn't realise is that by skipping this step, that western analysts are applying the wrong assumptions and reference data points (ie print media) to the models and potential outcomes.
• I enjoyed the confirmation bias on my understanding of risks associated with FDV, and how much of an EM risk is terminated by having a local founder lead business! Also that EMs are often a generalized let down, and these wild west places are just like us; families and wage slaves and car-nuts and complainers about our government and wish they had a strawman like site for their local stock exchange etc.
• Shaun did seem frustrated at times, that FDV does what it says it will do, yet the market won't acknowledge that in the share price.
• Shaun spoke to generic business updates, and that is all unsurprising to me, ie 13 of 16 business are at inflection and are FCF +ve.
• Overall I was again impressed by Shaun's competence and confidence.

I continue to hold and top up IRL.

Some thoughts on the meeting today:

• Shaun clearly knows his stuff, and has a long and successful career in this space.
• While the company has been burning cash to date, the unit economics have been attractive and the wider business is at an inflection point -- delivering positive EBITDA and cash flow for the majority of its portfolio of assets, with a lot of latent pricing power
• Super strong balance sheet -- 30m cash, no debt
• Smart strategy of just acquiring the leading marketplace provider and scaling into full ownership as they successfully execute.
• Emerging markets skipped the desktop internet revolution and went straight to mobile -- as internet usage has exploded, these online marketplace businesses are likewise flourishing, and we're at a point where the usual network effects have already decided the likely winners.
• Shaun reckons the LATAM market alone is worth more than what the market currently values the whole business is at.
• shares are at 5x sales or so. so although they have come back a ways, i wonder if that was more a sign of previous over-exuberance? But to be honest 5x sales for something with such strong and consistent revenue growth, and seemingly now self funded, with a long runway, isnt egregious.
• Shaun seemed very keen to put the boot into other tech companies that had terrible models and unit economics and never showed any sign of scaling. Not to mention the valuations they attracted. For whatever it's worth (he will be biased off course and its part of his job to sell the narrative) he felt shares were not reflective of value.
• Sovereign risk isnt as big a deal as people in the market tend to think. EG the incidents in Sri Lanka this year didnt stop growth.

Overall, i thought Shaun was impressive. Without having done any real work on the financials, shares seem 'fair' (not cheap or expensive).

On watchlist.

 ASX Code: FDV

3 November 2022

• • •

• •

Update on EMPG IPO plans involving Zameen

  Zameen’s parent company, EMPG, has successfully raised US$200m and announced its

 intention to prepare for an IPO in the near future

 Zameen is the leading property marketplace in Pakistan and one of the most successful

 classifieds players in emerging markets globally

 Zameen’s last internal funding round was conducted at a US$400m pre-money equity valuation in December 2020, which in that quarter recorded revenue of A$12.4m and

 EBITDA of A$1.2m (100% basis)

 Zameen reported revenue of A$22.3m and EBITDA of A$5.0m in 3Q 2022 (100% basis),

 increasing 38% and 52% on pcp respectively, and continues to be cash flow positive

 FDV is supportive of EMPG’s IPO plans, which are consistent with FDV’s long-term value

 creation strategy

Frontier Digital Ventures Ltd (“FDV” or the “Company”) welcomes recent news from Zameen’s parent company, Emerging Markets Property Group (“EMPG”), in relation to the successful completion of a US$200m funding round, and their plans to prepare for an IPO in the near future.

EMPG, the Dubai-based parent company of Zameen, holds a 70% interest in Zameen, with FDV the only other shareholder through its 30% minority interest. EMPG has announced the round was led by US-based growth equity fund Affinity Partners, with new investors including KCK and Acacia Partners, as well as participation from other existing shareholders including Euronext Amsterdam-listed Prosus (AMS.PRX). The majority of the funds raised are earmarked for EMPG’s businesses in the United Arab Emirates (UAE). The valuation of EMPG was not disclosed, however EMPG noted the funding round was completed at a significantly higher valuation than their last funding round in April 2020, which valued the company at over US$1 billion.

 FDV’s Founder and CEO, Shaun Di Gregorio said:

“FDV welcomes recent news from Zameen’s parent company, EMPG, in relation to their focus now turning to preparing for an IPO in the near future. This marks the first time EMPG has publicly commented on its ambitions for an IPO, which we expect will increase the spotlight on Zameen, including its ownership structure and valuation. We are supportive of EMPG’s IPO plans, and we look forward to working with them to help facilitate their ambition.

Zameen was FDV’s first investment in 2014. The business has performed incredibly strongly over this time and we are delighted with the scale and success of the business. An IPO involving Zameen is consistent with FDV’s long-term value creation strategy for shareholders.”

In addition to its shareholding in Zameen, EMPG owns and operates property classifieds platforms across MENA and Asia, including Bayut and dubizzle in the UAE. In April 2020, EMPG merged with OLX Group (a subsidiary of Prosus) in four countries: Pakistan, Egypt, Lebanon and the UAE. The merger

Frontier Digital Ventures Ltd

39-8 The Boulevard, Mid Valley City, Lingkaran Syed Putra 59200 Kuala Lumpur, Malaysia 1

Tel: +60 3 2700 1591 www.frontierdv.com

 transaction was funded through a US$150m funding round in EMPG, which was led by OLX Group and EMPG’s existing shareholders.

Zameen, the market leading property marketplace in Pakistan, was FDV’s first investment in March 2014. In December 2020, Zameen completed an internal funding round at a US$400m pre-money equity valuation, which represented a 100x increase on the US$4m valuation at the time of FDV’s initial investment (see ASX announcement, Zameen valuation update, 7 December 2020).

 EMPG’s CEO, Imran Ali Khan said:

“With this round of investment, EMPG begins a new chapter in its success story. We are on track to double our revenue over the last 24 months while achieving an EBITDA positive position, and we look forward to continuing this strong growth trajectory. With the successful closure of this round the company’s focus will now turn towards preparing for an IPO in the near future, which has always been part of our larger vision.”

In the quarter of Zameen’s last funding round, Zameen recorded revenue of A$12.4m and EBITDA of A$1.2m (100% basis). Since then, the business has continued to perform strongly with a compound quarterly revenue growth rate of approximately 10% each quarter between 1Q 2021 and 3Q 2022 (100% basis). As previously announced in FDV’s recent 3Q 2022 results, Zameen reported revenue of A$22.3m and record EBITDA of A$5.0m (100% basis), increasing 38% and 52% on pcp, respectively. Notably, Zameen continues to experience strong EBITDA margin expansion (+22% in 3Q 2022), while also continuing to be cash flow positive.

This news follows the introduction of a management team at the FDV LATAM holding company level, designed to unify InfoCasas, Fincaraíz, Encuentra24 and Yapo and accelerate FDV’s ability to unlock the growth potential of the region. FDV and the FDV LATAM leadership teams are currently co- designing a value creation plan, which in the longer term, considers the potential for a NASDAQ listing of FDV LATAM (see ASX announcement, FDV LATAM strategy update, 6 October 2022).

– ENDS –

This announcement is authorised for release by the Board of Directors of Frontier Digital Ventures Ltd.

For more information, please contact:

Company

Shaun Di Gregorio

Founder and CEO

Phone: +60 3 2700 1591

Email: shaundig@frontierdv.com

About FDV

Investors

Timothy Toner

Vesparum Capital

Phone: +61 3 8582 4800

Email: frontierdv@vesparum.com

 Frontier Digital Ventures (FDV) is a leading owner and operator of online marketplace businesses in fast growing emerging markets. Currently, FDV’s portfolio consists of 16 market leading companies, operating across 20 markets in FDV LATAM, FDV Asia and FDV MENA. FDV works alongside local management teams across property, automotive and general classifieds, providing strategic oversight

Frontier Digital Ventures Ltd

39-8 The Boulevard, Mid Valley City, Lingkaran Syed Putra 59200 Kuala Lumpur, Malaysia 2

Tel: +60 3 2700 1591 www.frontierdv.com

 and operational guidance which leverages FDV’s deep classifieds experience and proven track record. FDV seeks to unlock further monetisation opportunities beyond the typical classifieds revenue, to grow the equity value of its operating companies and realise their full potential. Find out more at frontierdv.com.

 Frontier Digital Ventures Ltd

39-8 The Boulevard, Mid Valley City, Lingkaran Syed Putra 59200 Kuala Lumpur, Malaysia 3

Tel: +60 3 2700 1591 www.frontierdv.com

4C out today. No real surprises. All businesses chugging along well, EBITDA of $2.3m which (annualised and backing out cash) puts the business on 28.5x.

All regions were EBITDA positive. Margin was 11%, which brings YTD bang on to my ‘bull case’ estimate of 5%. Another quarter like this would put it somewhat over.

Haven’t had time for a detailed valuation update, but I don’t think it would change very much. Still very keen on this business.

Held.

CEO (Shaun Di Gregorio) has bought about $50k on market and chairman (Anthony Klok) has bought about $75k. Relatively small sums, but still nice to see managment taking advantage of SP weakness.

My points of interest from the Quarterly

1.     On a 100% basis, FDV achieved revenue of A$36.3m in 1Q 2022, increasing 54% on pcp.

2.     12 of the 16 operating companies reported positive EBITDA in 1Q 2022 - no change from Q4 2021. However, of the 4 companies with EBITDA losses, 3 recorded improvements in their EBITDA position, relative to the prior corresponding period.

3.     During the quarter, FDV recorded receipts from customers of A$15.3m, and net operating cash outflows of A$2.4m, reflecting the targeted investment in development of transaction capabilities. The Company reported A$48.1m in cash and cash equivalents.

4.     Similar appreciation in the Australian dollar (AUD) across all local currencies, as per previous straw. This is not a red flag for me, just business as usual (BAU).

Assessment against my thesis and DCF model.

As per the previous straw, Shaun said in the half year results transcript that his goal was “FDV’s 12-24 month goal is consolidation of their businesses.” He see’s their position as able to be break-even and reinvest internally in the existing businesses.

Well? He has done that, again this quarter. Point 1-3 prove that again. My thesis has not changed. I have already topped up on the current weakness several times. And to be fair, quarterly reporting is a pretty short time frame, so overall no major negatives, just incremental positives. Which is impressive given the hair-trigger status of markets right now.

FDV released their full year results this week. Practically no change from the 4th quarter results - FDV continues to exceed expectations and execute its plan successfully.

What was interesting is a couple of slides that visually show how they start with classifieds and end up with more of the transaction pie slice, that is more of the exchange happens on the site. THe trick is the size and trust of the site, so that users continue to pay for a service and don't flee to the next startup that is 'free'.

A carsite.com example. carsite.com connects a buyer and seller, but these persons exchange their money separately to the carsite.com website. carsite.com makes money from ads on site, and a fee charged to the seller. If carsite.com provided a 'click here to check car rego for $x' and 'click here to pay via carsite.com payment portal etc', then more ticket clipping occurs for carsite.com.

FDV’s 2021 half year results call transcript revealed some excellent insights:

1.       The business model and plan are proceeding on track according to the CEO Shaun Di Gregorio. All the way through the transcript, Shaun’s words are confident, relaxed, and not defensive. He genuinely seems happy with the progress and is exactly where he wants to be positioned. Note I didn’t hear the transcript, but I am reading this emotion via the words.

2.       Shaun spoke of FDV’s movement in the sub-businesses from pure classified’s revenue to a transaction-based revenue. This is all the practical enabler requirements – buying a car (the classified) – need insurance? (redirect for the transaction) – need finance? (redirect the insurance) – need a road worthy? – (redirect for the transaction) – etc. He also spoke to how a simple website redesign might look like a surface change, but underneath, it clears legacy technology and provides a better the tech stack back end for FDV to work with and grow.

3.       FDV’s 12-24 month goal is consolidation of their businesses. He see’s their position as able to be break-even and reinvest internally in the existing businesses.

4.       Shaun provided insight into how they M&A. FDV is monitoring 1,200 websites over 50 countries. They prefer at least $1mil in revenue before creating a starting size holding. M&A is priority 3 over the next 18 months, but he won’t pass up a deal if he see’s one.

5.       The market see’s FDV as a $500mil MC, and Shaun see’s the growth out to $3-5bil MC.

6.       There were several questions about competitors. Shaun is confident that La Haus in Columbia is not a threat, as FDV’s business is the first mover, and, MercadoLibre, from Shaun’s opinion is operating in a different vertical and therefore not a threat.

Disc: I hold. And will top up on any weakness. My thesis remains unchanged.

FDV owns a portfolio of online classifieds businesses across emerging markets. FDV invests in existing start-ups in countries they assess as a value proposition. They buy in an initial stake, and increase or decrease that position as required, and where suitable, seek to proceed to 100% ownership. One can see from the notes below, copied from the latest 4C, that FDV had an active 12 months!

Three outcomes to note here in your analysis:

1.    Normally excessive M&A is a warning sign for investors, as integrating new businesses into a current business is a well worn path for failure. However, in the case of FDV one should consider a different point of view, and perhaps accept this as normal and apply less weighting to this risk factor.

2.    Maintain an eye on cash flow. M&A can be expensive and if the business is too active, it can force itself into positions where it dilutes shareholder value to source cash to operate the business.

3.    Having so many fingers in so many pies can be confusing for people to mentally grasp, and that can make people place it in the too hard basket when considering investing in FDV. Developing a model that creates comfort with FDV's methodology for operating is a must.

Notes from 4C:
1. Results figures quoted for entities with continuing operations as at 30 June 2021
2. FDV increased its shareholding in InfoCasas from 51% to 100% on 23 June 2021; 1H 2021 revenue contribution represents the
proportional share of revenue
3. FDV acquired a 100% interest in Fincaraíz, Avito and Tayara on 8 October 2020
4. FDV ownership of Encuentra24 was 42% in 1Q 2020, prior to the business combination with OLX’s Central American platforms
5. FDV acquired a 100% interest in Yapo on 25 February 2021
6. FDV increased its shareholding in Hoppler from 42% to 51% on 15 July 2021
7. West Africa includes PropertyPro (Nigeria: 39% owned) and MeQasa (Ghana; 69% owned)
8. FDV increased its shareholding in Moteur from 56% to 100% on 21 January 2021; 1H 2021 revenue contribution represents the
proportional share of revenue
9. FDV increased its shareholding in iMyanmarhouse from 43% to 53% and in LankaPropertyWeb from 48% to 53% on 24 January 2020
10. New entities refers to Fincaraíz, Avito, Tayara and Yapo

With the covid-19 delta strain impacting our daily lives here in the land down under, I wondered how it might be impacting the daily lives of countries in which FDV derives significant revenues. The following is a generic observation based on data found here, and my own meandering-non-pandemic-qualified-experience of living in a country with the virus and my attempts to return to ‘normal’.

Over the last half (Jan-July 2021) FDV derived 86% of its revenue from Pakistan, Columbia, Chile, Morocco, Uruguay, Paraguay and Bolivia.

During Jan-Dec 2020, those listed countries were all impacted by covid-19, and had stabilised their average number of covid cases by Dec 2020. During the reporting period for the latest 4C, the period covering Jan-July 2021, all of those countries recorded large increases in covid-19 cases due to the delta variant, and the businesses that FDV own fully or partially still maintained or improved revenues.

This suggests that facilitating the classifieds market is a pandemic proof business, the same as it appears to be here in Aus.  

ASX:FDV builds online marketplace businesses in emerging markets. Emerging markets by definition are overseas, and therefore have FX conversion risk. That is, the price movements around converting our mighty AUD$ to another nation’s currency or the reverse.

This in itself, is a risk to acknowledge and accept when owning any company that derives revenue outside of Australia (ie the currently popular lets-go-the-USA-or-China-and-sell-more-stuff plan).

Looking through the latest 4C from July 2021, FDV does business in 20 different currencies. Twenty! (As an aside, surely that provides a level of diversification also…) We also observe the comment from management, “the appreciation of the Australian Dollar (AUD) against all local currencies, where FDV has exposure, has masked the strong underlying half-year revenue growth exhibited across the portfolio.”

What does this mean? Well actually, it is a good problem to have, sort of. If we were tourists, we want this as we get more of their kind of money for each AUD$ we convert. However, FDV reports to us shareholders in AUD$, and so converts 20 currencies back into AUD$. When converting back into AUD$, we are getting a raw deal right now – so this the bad part, the FX risk realised, we lose money on the conversion back into AUD$.

Next, note that I like to, if possible, exclude revenue growth by acquisition (because it is sorta cheating). So, the good news is that the 4C also showed FDV had organic growth of 39% above the pcp (1H2020). We also see that the average FX change was about 12% not in our conversion favour. If we remove the conversation effect by adding that 12% back into total revenue for 1H2021, then there is a 56% increase vs the reported 39% increase.  

We know FDV is a growth company, and so seeing 56% growth (if my analysis is correct) or 39% growth (if I am incorrect) is what we want to see. And even better if this growth is obscured because it will create a better buy-in share price.

ASX:FDV builds online marketplace businesses in emerging markets. Emerging markets often have complex political situations that materially impact their own economies, such as a coup d'état.

FDV is the majority owner of two businesses in Myanmar, which underwent such a coup this year.  FDV own 53% of iMyanmarHouse, and 65% of carsDB.com.

Oh no you’re thinking, coups are bad for business! And yes, they are! In the latest annual report in April 2021 management forecasted a material impact to the results of these two business’ individually.

Now the good news. Looking through the latest 4C from July 2021, we can see that these two businesses contribute only 1% of the total revenue for FDV. So, while this risk did eventuate, its consequence was immaterial to the bottom line, by its percentage contribution to FDV’s collective revenue, and FDV holding a diversification of businesses across multiple geographic regions.

Also, coup’s come and go in emerging markets, and some level of national event involving violence should almost be expected. Whilst seemingly disruptive and abhorrent to us, events such as this are often only disruptive in the short term to people living through them, and many nations adapt quickly to changes at the national level and just keep calm and carry on – going to work, buying cars, selling houses etc.

6 Questions of Bull Happiness

1. Leadership. Shaun Di Gregorio is founder and CEO. Still with the company. Has strong history of success in this type of business. He owns ~10% of shares on issue. So aligned, but not hogging the liquidity.

2. Debt. Nil debt is best as a risk reduction measure against inflation. Latest 4C shows nil signifcant debt.

3. Organisational phase. This is Growth according to Peter Lynch's model. Knowing this helps shape our bias and expectations of when and how a growth stock reacts. Also, growth is our target for capital appreciation (vs income).

4. Moat. FDV invests in first-movers in selected target countries. Risk is reduced by partial investment initally, increasing to ownership as success is proven and relationship is built. By investing in local sites, FDV gets the customer love, and thus retention, vs 'a big outsider launching' in their local country.

5. Cash is king. FDV is not cash flow positive, yet. Expected to be in the next FY. Only 5 of 16 websites have EBITDA losses. FDV has been growing collective revenues at >60% each year, with the exception of 2020. FDV has cash runway for >3 years if no aquisitions are made.

6. Scale. FDV earns 100% of revenue outside Australia. This is good for international revenue exposure in a retail investors portfolio. FDV's revenues are split over three geographic regions (SE-Asia, Africa, Central/South America), this reduces risk by region.

Mr Di Gregorio is CEO has excellent credentials -

In a past life he spent eight years as General Manager at Australia-based REA Group, a leader and publisher of 20 real estate websites in 12 countries. As General Manager of the core Australian business and leader at realestate.com.au, Mr Di Gregorio grew the business a team of eight people with more than 300 staff.

Plus he has plenty of "Skin in the game" 11.07% of the company's shares

Frontier Digital Ventures Limited (FDV) focuses on developing online classifieds businesses in underdeveloped, emerging countries or regions. FDV's portfolio currently consists of investments in 12 market leading operating businesses across 14 markets.

Business Strategies:
Frontier is focused on maintaining and growing the Operating Companies' strong positions in online classifieds in the geographic markets where they operate. Each of the Operating Companies seek to provide the most accurate and comprehensive database of for sale listings in the relevant Operating Company's sector.

Investment Portfolio:
The Company's portfolio consists of zameen.com, encuentra24.com, Autodeal, parkwheels.com. Infocasas, Hoppler, iMyanmarHouse.com, Propzy, carsDB, LankaPropertyWeb.com, Kupatana, PropertyPro.ng, meqasa.com, moteur.ma, Angocarro and Angocasa.