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Average Intrinsic Value
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#CEO Meeting
Added a month ago

Below are my rough notes from the meeting. There might be some errors as I haven't gone back through to check them. Nothing too new there except it does sound like there is a potential setup for a new stage of growth for the way the platforms are being aligned for the development and integration of new products. Thanks @Strawman for setting up.

  • Currently going through consolidation of businesses in each of the regions. LATAM going from 4 to 2 platforms from July 1. MENA group next, ASIA not going through this stage yet due to ownership levels and the stages of the businesses within the group.


  • What lessons have been learnt from investments that haven’t worked? 
  • Have exited businesses where there have been issues with the founder. When looking at the business, look at them from the smallest to the biggest to see why the scaling isn’t progressing.


  • When you look at the businesses do you see more opportunities?
  • Consider the portfolio as a region base now rather than a collection of the businesses under the FDV banner as a whole. Currently there may be more space to grow the footprint in each of the regions. LATAM - currently focused on scale, MENA - focusing on growth, ASIA - less evolved competitive market, still room for leaders in markets to emerge.


  • Growth vs Profitability?
  • Still a growth business, can expect profitability to come with growth. Upcoming Q2 results may reflect a return to focus on growth.


  • Inflation in Emerging Markets
  • EMs typically live with inflation that is more tolerable than in western markets. Inflation and interest rates have halved in Pakistan. Seeing improved market conditions which is helping business conditions. Some government intervention into housing markets which is assisting, some markets transactions aren't backed by loans so interest rate risks are different.


  • FX
  • Convert by USD so there are movements in both directions, hedging occurs by where FDV holds cash in local currencies.


  • M&A
  • Always on the lookout for opportunities, signs of M&A improvement across markets over the last several months. Need to consider what is best for shareholders of FDV.


  • Mercado Libre
  • Gumtree of LATAM market, horizontal marketplace. They have now pivoted to be the Amazon of LATAM and more of a retail space compared with FDV. Does not consider them a direct competitor.


  • Sovereign Risk
  • Avoid to begin with. The markets that have been selected are chosen to help avoid the works of emerging markets risk. Not dependent on international transactions so internal transactions tend to continue regardless of what is occurring. Other more “stable” markets can also have major disruptive risks.


  • AI
  • Influence of AI on the day to day is low impact, nothing in the AI space that is currently going to change the business in a fundamental way. Lots of use in improving efficiencies within products and for users. Facilitator not captured by it.


  • Gross Margin Reductions
  • Don’t focus on gross margins typically, focus is on the bottom line. 20% EBITDA margins for some of the operating businesses already. Classified businesses are already profitable and the future is now focused on expanding the businesses beyond classifieds.


  • Centrify & Iris
  • Examples of new products that have a long term scale potentially several million each. Not directly applicable in other markets. Want to add ~6 new products over an 18 to 24 month period. Working on better platforms that allow for more streamlined product releases.


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#Network Effect
Added 2 months ago

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

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#Quarterly Review
Added 2 months ago

The Good

  • LATAM360 EBITDAs are trending up across 3 of the 4 business’s

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The Not So Good

  • Revenue is up on the PCP but down QoQ. Q1 is revenues can be impacted slightly by seasonality so the expectation would be an improvement next quarter. The $19.2m revenue for the quarter when annualised is less than FY23.

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  • Cash balance of $13.9m indicates a FCF burn of ~ $0.9m, so there is still room to improve before the business is covering its investments in R&D.
  • Now that the quarterly reporting isn’t mandatory, operating expenditure will not be visible until the half year report.
  • Web metrics and revenue splits across transactions and subscriptions are no longer reported
  • Yappo was impacted by fires in Chile and a system change which is more aligned with Encuentra24.
  • ASIA businesses are trending flat or falling EBITDAs except for iMyanmarhouse

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  • The same is the case for the MMG business’s

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Watch Status

Deteriorating - QoQ decrease in revenues across all business units

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Valuation Status

Hold

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What To Watch

  • Pakistan is still struggling economically and likely to for quite some time.
  • LATAM360 - Launch events planned through major cities for the IRIS platform. Potential to continue to drive revenue growth. (3.6% of Revenue)
  • LATAM360 - Expanding locations for Centrify (13.5% of Revenue)
  • MMG - Integration of home financing product
  • MMG - No reported details for PropertyPro?
  • ASIA - Online inspections and auto bidding in the pipeline.
  • Zameen revenue was the highest in Feb24 since Feb23, showing signs improvement could be starting.
  • Improvements in Yapo after system change and release.


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#Risks
Added 3 months ago

FDV operates in emerging markets, the title is synonymous with risk. The most talked about risk with FDV is their two businesses in Pakistan, as it was for a time their largest contributing geography.

The CEO did an interview with Alan Kohler recently (free trial account can be made), and Shaun made some really interesting points, in counter to Alan's often contemptuous hard hitting questions of small cap CEO's;

"... Zameen in particular, have remained pretty constant. So, people are still coming to the website, people are still searching, people are still enquiring. They’ve stopped and reduced the actual transaction of the house. So they’ll go so far as search, discover, enquire, have a look, but holding off on transacting because of the uncertainty around them. That’s reduced the volume of transactions in the market. Conversely, ... PakWheels, they’re in cars, it’s the Carsales of Pakistan, they’ve had their best 12 months ever, ... they’ve thrived in a market where new car sales have reduced, the second-hand car market has become far more active and second-hand car prices tended to go up."

Fascinating the discussion around constant visits vs finalisation. I think its a positive indicator that their website traffic remains as high as ever and it is temporal issue of the geography that is limiting the closing of the sales. It implies to me the temporary nature of the issue and the high likelihood of finalised transaction numbers returning quickly to normal post issue. Any opportunity Mr Market is missing me thinks.

Disc: I hold IRL.

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Valuation of $0.450
Added 4 months ago
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#Full Year Review
Added 4 months ago

FY23 Presentation

Q4 Results

The Good

  • Revenue for Q4 of $21.7m which is the highest of FY23 after 3 quarters of consecutive growth. 

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  • Quarterly EBITDA slightly down to $2.2m but positive for FY23 and up on the pcp to $4.8m
  • Ended FY23 with $14.85m in cash
  • After four positive cashflow positive quarters, FDV is now no longer required to provide the mandatory quarterly updates. Management have indicated that they will continue to provide an update on this basis. Hopefully these maintain the same details as per the current updates.

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  • 12.5% QoQ improvement in revenue in MENA up to $2.7m with revenue growth mostly from subscriptions. EBITDA reduced 50% against Q3 to $0.35m with Avito trended back toward previous performance.

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  • 93% QoQ increase in EBITDA in Asia to $0.6m on the same revenue. Primarily from an uplift in Zameen.

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  • 18% QoQ increase in EBITDA in LATAM to $1.75m on a marginal revenue increase. Driven by strong performance of InfoCass and Fincaraiz

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The Not So Good

  • 34% QoQ growth in staff expenses. This is the biggest driver behind the fact that even though there were record cash receipts, operating cashflow was down in Q4.

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  • Full year revenue down to $80.6 from $84.5 mostly driven by reduction in Zameens contributing revenue.
  • A fall in the reported web metrics across all regions. This follows a flat quarter in Q3. Potentially a bit of seasonality in these numbers and wider macro events having an impact in these areas as they are in Australia. 



Watch Status

Downgrade to neutral due to financials behind forecast.

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Valuation Status

Valuation reduced. Forecasts to be revisited based on FY23 results.

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What To Watch

  • Ongoing improvement in Zameen operations will lead to significant increases in contributions from the Asia region. Stabilising economic conditions in Pakistan could provide some tailwinds for a Zameen turnaround.

https://www.imf.org/en/News/Articles/2024/03/19/pr2491-pakistan-imf-reaches-staff-level-agreement-second-final-review-9-month-sba

  • Working towards increasing transactions revenue in MENA.
  • Targeting gross margins of 40-50% across all businesses.
  • Update on the status of Dubizzle listing. Likely London Exchange.
  • Investing in a product roadmap to improve user experience and target new revenue areas. Keep an eye on impacts on investment spend and announced products.


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#FY23 Results
Added 5 months ago

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

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Valuation of $0.430
Added 5 months ago

Having watched an initial small position in FDV become a tiny position due to the troubles with Zameen and general market re-rate over the last couple of years, it’s time to decide to commit or capitulate.

Business Profile:

Frontier actively invests in and moves to controlling stakes in housing and car market platforms in developing countries in Latin America, Asia and North Africa. CEO founder Shaun Di Gregorio sold iProperty to REA and runs Frontier (9% own), which starts with a non-controlling position and increases as it sees potential and is able to assist in the establishment of the platform as a market leader.

All current platforms are leaders in their markets, but the markets are developing economies with currency, political and economic risks beyond developed markets, but are currently about 10-15 years behind in the industry. As such the chance to become the dominate player in a winner takes all market is up for grabs. In addition, due to the nature of the markets and lack of trust between seller and buyer due to poor institutional and legal controls, there is the additional opportunity to clip the ticket to facilitate the transaction, not just to act as a marketing portal.

FY23 Update:

Frontier has just had its first full year of positive cash flows, and EBITDA is up from $5.7 to 7.8m but revenue is down 5% due to Zameen (Pakistan) which also had reduced EBITDA contribution. Recurring subscription revenues have increased significantly to absorb falling Advertising and Media revenue which indicates underlying growth of the platform but short-term market weakness.

EBITDA% increased from 8% to 10% Vs FY23. A 48% drop in EBITDA contribution from Zameen was picked up by 360 LATAM increasing 61%. Note that Q4 saw Zameen’s EBITDA% increase from 3% to 16% QoQ on a negligible change in sales (cost management?)

Investment Thesis:

Frontier operates in high-risk markets with high returns potentials, but the diversity of the markets and now being cash flow positive mitigates a lot of the risk (Ergodic). An above market return is justified if just one of the markets takes off and becomes even 10% as successful as REA.

Frontier currently controls or part owns the leader in each of it’s markets, with challenging economic conditions of the last few years leading to the a large cull of other minor players. Pakistan retuning to stability post-election and continued growth with 360 LATAM provide the greatest opportunity but MENA Marketplace Group and FDV Asia sit at 20% of Sales and 25% of EBITDA contribution currently are also strong contenders for long term value.

Need to see Frontier maintain it’s market leading position and preferably show progress on sales and EBITDA growth in aggregate. Will expect significant volatility in results across the markets but provided the group can continue to grow FCF then the investment is on track to perform.

Value:

The variability of outcomes is extreme so I am looking more at what the current price assumes and seeing if that is favorably asymmetric.

High Discount rate: 15% (Mkt perception) multiple parts, early stage and markets it operates in.

Sales growth slower than company target of US$100m by FY25, I assume FY27.

EBITDA% rises to 21%, which is reasonable given Zameen was doing 18% in FY22.

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Valuation average = $0.43 on above assumptions

·        DCF = $0.35 discounted from FY28 @15%

·        PE 15= $0.49 discounted from FY28 @15%

·        P/EBITDA 12 = $0.45 discounted from FY28 @15%

Other Issues:

·        Strong possibility of additional capital raises to fund new purchases or increase stakes in existing purchases.

·        FDV markets may have a population 34x Australia but the GDP of those markets is only 3x and with unstable currencies and governments in many.

·        FX movements will swing results considerably – FY23 a 26% FX move in Pakistan on 14% of the business impacted the result materially.

Decision:

This remains a speculative position, but one I intend on returning to a small position and commit. I don’t see a rush to buy, the price is still struggling under seller pressure so I will ease my way back into a reasonably sized position. The market is yet to be convinced that FDV is pivoting into profitability and cash generating – the price won’t be at this level once we know for sure!

Disc: Own IRL

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#Financials
Added 6 months ago

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

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#Share price action
stale
Last edited 6 months ago

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

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#Media
stale
Added 8 months ago

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


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

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#Quarterly Review
stale
Added 9 months ago

Annoucement

The Good

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

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

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  • 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.

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  • Operating expenses continue to remain flat

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

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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

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  • 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

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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?


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#ASX Announcements
stale
Added 10 months ago

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.

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#Increase Stakes/Acquisitions
stale
Added 10 months ago

FDV Increase Stake History

·      December 2021 acquire 100% ownership in Encuentra24

https://announcements.asx.com.au/asxpdf/20211217/pdf/4548tkpv1g9r90.pdf

·      July 2021 increase shareholding in Hoppler.com.ph from 42.0% to 51.1% moving to majority ownership for fixed cash consideration of US$250K. https://announcements.asx.com.au/asxpdf/20210715/pdf/44ybm8578g5nmc.pdf

·      June 2021 move to 100% ownership of InfoCasas cash consideration of US$6.2m. https://announcements.asx.com.au/asxpdf/20210609/pdf/44x79938wgj6wl.pdf

·      February 2021 acquires 100% of Yapo for total cash consideration of US$19.5m (~A$24.7). https://announcements.asx.com.au/asxpdf/20210225/pdf/44t1wvmhzb8mg0.pdf

·      January 2021 acquires 100% interest in Moteur.am for consideration of US$1.2m https://announcements.asx.com.au/asxpdf/20210121/pdf/44rwyx0nrw3d77.pdf

·      November 2020 Hoppler  acquires direct competitor ZipMatch.com https://announcements.asx.com.au/asxpdf/20201123/pdf/44q48pk8p122nr.pdf

·      October 2020 acquire 100% of Fincaraiz, Avito and Tayara from Adevinta for total cash consideration of approximately ~A$56m. https://announcements.asx.com.au/asxpdf/20201008/pdf/44ngq0fltm45b9.pdf

·      February 2020 increases shareholding in iMyanmarhouse and LankaPropertyWeb. iMyanmarhouse from 42.6% to 52.6% for consideration of US$930,000, 50:50 between cash and new shares in FDV with the cash component equal to US$465,000. LankaPropertyWeb from 47.8% to 53% through the conversion of a US$250K loan facility. https://announcements.asx.com.au/asxpdf/20200224/pdf/44fd3p2yxfxgd1.pdf

·      December 2019 FDV increase its shareholding in Autodeal from 36.8% to 55.8% for consideration of A$3.2m to be settled via the issue of new shares in FDV at an issue price of $0.85. https://announcements.asx.com.au/asxpdf/20191218/pdf/44cpdhprq7t16v.pdf

·      December 2019 increase its ownership of Infocasas from 31.9% to 51.0% for cash consideration of A$5.2m. https://announcements.asx.com.au/asxpdf/20191213/pdf/44ck7p6gl01sv7.pdf

·      December 2018 LankaPropertyWeb acquisition of Lamudi.lk for total consideration of $US$125,000. FDV at time holds 48% equity interest in LankaPropertyWeb. https://announcements.asx.com.au/asxpdf/20181219/pdf/441c0ys3b7d5k8.pdf

·      November 2018 increase stake in Hopper from 20.59% to 37.21% for cash consideration of US$0.9m https://announcements.asx.com.au/asxpdf/20181120/pdf/440fr2jb0dp9bp.pdf

·      May 2018 increases stake in Autodeal.com.ph from 33.33% to 36.84% for. Cash consideration of A$0.5m https://announcements.asx.com.au/asxpdf/20180518/pdf/43v3ykfhyggf68.pdf

·      March 2018 increase stake in Moteur.ma from 48.67% to 56.62% for US$0.3m https://announcements.asx.com.au/asxpdf/20180321/pdf/43sm86yszqb4wb.pdf

·      November 2017 participates in funding round for Zameen maintains its 30% equity interest by providing US$1.5m https://announcements.asx.com.au/asxpdf/20171129/pdf/43ppr7y1mc3gmz.pdf

·      November 2017 increase stake in Propzy.vn to 28.6% for US$0.4m https://announcements.asx.com.au/asxpdf/20171122/pdf/43pgl268bzwknx.pdf

·      November 2017 Acquisition of 3 online property classifieds portals from Jumia. 3 acquired portals are all existing competitors to meQasa, ToLet and AngoCasa. As consideration for the deal Frontier will sell Afribaba and pay US$500k to Jumia. https://announcements.asx.com.au/asxpdf/20171103/pdf/43ny0xgfsp2gtk.pdf

·      October 2017 investment into Hoppler for US$0.7m cash investment for an initial 20.59% https://announcements.asx.com.au/asxpdf/20171006/pdf/43n0lqcylg74py.pdf

·      September 2017 investment in Infocasas for US$952K in cash. https://announcements.asx.com.au/asxpdf/20170907/pdf/43m4byv7mt9l2y.pdf

·      June 2017 increases ownership in Encuentra24.com from 38.7% to 42.1% for price US$1,051,095. https://announcements.asx.com.au/asxpdf/20170623/pdf/43k4bf0khqxgvc.pdf

·      June 2017 investments into Autodeal A$3.1m using blend of cash (A$1.5m) and Frontier equity (A$1.6m at A$0.55 issue price) for an initial 33.33% stake. Investment in Propzy US$1.2m cash (A$1.6m) for 28.6% stake. https://announcements.asx.com.au/asxpdf/20170605/pdf/43jqndkr97btgn.pdf

·      March 2017 increase stake in LankaPropertyWeb from 37% to 48% for price US$200,000.https://announcements.asx.com.au/asxpdf/20170324/pdf/43h0xjwns89nw1.pdf

·      December 2016 increase stake in Encuentra24.com from 34.9% to 38.7% for payment of US$933,333. https://announcements.asx.com.au/asxpdf/20161216/pdf/43drxfwp3pp50q.pdf

·      October 2016 participates in Zameen Ltd  capital raise US$2.1m maintaining its current 30% equity shareholding https://announcements.asx.com.au/asxpdf/20161021/pdf/43c5zkxyhwh26x.pdf

·      September 2016 increase stake in Moteur.ma $330,000 USD from 32% to 49%https://announcements.asx.com.au/asxpdf/20160930/pdf/43blvtxznk0bgp.pdf

·      September 2016 increase stake in

iMyanmar Pte Ltd                   42.63%             $300,000 USD

Meqasa Holdings Pte LTd       66.20%                        $300,000 USD

PakWheels Pte Ltd                  36.84%                        $250,000 USD

https://announcements.asx.com.au/asxpdf/20160908/pdf/43b12jjqx6wm00.pdf

Exist Stake

·      February 2020 completed sale of its full 20% shareholding in Propzy for cash consideration of US$.47m (A$7.0m). Sale price represents a ~300% return to FDV’s shareholders on its US$1.2m investment in ~2.5 years. https://announcements.asx.com.au/asxpdf/20200206/pdf/44dvzmwsjb9ctk.pdf

·      December 2017 withdraws financial support from carWangu and casaMozambique https://announcements.asx.com.au/asxpdf/20171220/pdf/43q9yt8148j94n.pdf

·      September 2017 Exits IMCongo investment. https://announcements.asx.com.au/asxpdf/20170928/pdf/43mq1s3sg8xzlc.pdf

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#Capital Raise History
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Added 10 months ago

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

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#Quarterly Review
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Added 12 months ago

Announcement

The Good

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

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  • 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.


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

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  • $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.

7025243753939dc3ddf81a1ea4956908762d11.jpeg


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.



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  • 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)


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#AGM comments
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Last edited one year ago

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.


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#4C
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Added one year ago

The 4C is out for the quarter.

Notes to self the following:

Zameen has been impacted by the national instability. House selling is down ~50%, however car buy/sell PakWheels was steady, even a little up. I guess people have FUD in Pakistan like they do here and won't move on large sales, but will on smaller ones when experiencing FUD.

Interestingly, iMyanmarHouse bounced back >100%, which shows how quickly these types of businesses bounce back once the instability settles down. I am expecting the same once Pakistan calms the farm.

I remain skeptical of the "maiden quarter of cash-flow positivity". In this CF+ environment, you'd be crazy to work up the accounting tricky and FX voodoo to conjure up CF+ results. But at the same time, it fits with the narrative that Shaun has always told.

Finally, the cap raise was mentioned; the institutional placement for $13Mil was successful. I haven't participated in the SPP and wasn't going to. I was going to accept the dilution, but with the price of shares now around the price I first bought in at...well this little red dog is going to live on instant noodles for a week and buy a small top up parcel on market for $0 brokerage.

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^ screen grab from the 4C.

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#Capital Raise
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Last edited one year ago

The merits and risks of the business have been well laid-out previously, but if the price action over the long term is any indication, raising additional capital with the share price sitting close to multi-year lows (after a big drawdown from its 2021 highs) is not a great look. Thankfully it isn't a particularly large raise.

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#Capital Raise
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Added one year ago

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.

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#Capital Raise
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Added one year ago

$12M at 56c is 21.4M shares to add to the 379M shares already on issue, so that would take my partial valuation below from $0.77 to $0.73 for LATAM. Risk as @PinchOfSalt says is that the SPP is open ended and they'll raise (and dilute) as much as they can.

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#Capital Raise
stale
Added one year ago

They are raising capital, per below:


Request for trading halt

Frontier Digital Ventures Ltd (ACN 609 183 959) (ASX:FDV) (Frontier) requests that its securities be placed in a trading halt from the commencement of trading today pursuant to ASX Listing Rule 17.1. The trading halt is requested pending an announcement by Frontier in connection with an equity raising.

Frontier requests that the trading halt remain in place until the earlier of:

(a) an announcement being made about the equity raising; or

(b) the commencement of trading on Wednesday, 5 April 2023.

Frontier is not aware of any reason why the trading halt should not be granted or any other information necessary to inform the market about the trading halt.

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#Trading Halt
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Added one year ago

Something interesting at Frontier Digital Ventures (FDV). Trading halt requested this morning until Wednesday. Hope it is positive interesting and not negative interesting.

Held RL

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#Bear Case
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Last edited one year ago

@Bushmanpat, I've titled this straw bear case as their are some near term risks that you might want to consider.

Overall I think what you have done is a good go at getting a ballpark idea of where FDV could be in a few years if they keep executing in LATAM. I don't think the 5 years to get to $100M is that agressive and I will be disapointed if they dont achieve this sooner. If we look at how quickly the revenue of Zameen has grown over the last 5 years from $22M in 2018 to $82M in 2022, with this period including a flat covid 2020, so a pretty difficult 5 year period. LATAM is currently doing revenue of $45M, they have a good management structure in place and now and are capturing the transaction revenue so I think this trajectory should accelerate if it is working well.

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Now for the bear bit -- There are a few near term issues that I am not sure how they are going to be resolved.

-The big one that is in the price, is a default by Pakistan. It looks like they will get a IMF bailout, but this is me just reading the tea leaves as I would have expected them to fall by now if they were going to, but this is still a binary risk.

-They also have some contingency payments that fall due in May this year related to the purchase of the LATAM buisnesses - US$17M for Infocasas and US$9.7M for Encuentra24. They did do a deal last year when they did the regional restructure with the previous owners now the managers of the region. As part of this they swapped some of their earnout into FDV equity - minimium 50% for Infocasas and 25% for Encuentra24. They can also elect to take it all in FDV equity if they want to but if we assume they will take the minimum then FDV needs to come up with around $US16M. I'm not sure where they are going to get this from as they are still a ways off getting positive cashflow to cover this, they had cash of AUD$27M last quarter but this would leave them very thin if they use it all. Some options are a cap raise, would be bad timing given the SP. They might be able to offload some or all Zameen to the majority holder as part of a pre-IPO share registry cleanup. Alternatively they may negotiate a payment deferal. This is all speculation though as they haven't mentioned anything, but I expect that the details will be in the March quarterly.

Anyway @Bushmanpat this is a longwinded way of saying that, like you I am comfortable about the long term growth potential of FDV and LATAM in particular. I also think that they will get MENA improving as well. I do see this being a dynamic and bumpy ride though and I don't have high confidence in assessing what it is worth today beyond thinking that it is broadly undervalued if they execute the way I think they will. My approach with FDV is to keep following the quarterlies and as long as they keep executing against their strategy and the indivudal buisnesses are impriving then I am happy to back management and hold on.

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Valuation of $1.150
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Added one year ago

Current SP ($0.68) is 3.1 x Rev/Share.

At 5 x Rev valuation is $1.10.

Take 10 x Rev for just the high growth components (Zameen & InfoCasas with 38% and 59% 4 Year CAGR) valuation is $1.13 (ignoring the rest of the businesses).

Looking at forward growth based on growth history with the following assumptions:

  1. Rev growth 55% reducing to 10% at year 10
  2. Cost growth 50% reducing to 5% at year 10
  3. SOI growth at 15% reducing to 5% over 10 years
  4. PE 25 at year 10
  5. Discount rate 15% (high risk)


Present Value $1.22.

Current valuation in the order of $1.15.

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#Bull Case
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Last edited one year ago

Caveat: This is my first crack at a valuation, so forget the pinch, grab a bucket of salt!

This is a partial valuation based on the aspiration of getting FDV LATAM to $100M USD which Shaun di Grigorio has stated in recent presentations.

Firstly, let's assume that it takes 5 years to get there. In FY23, LATAM had $45.2M AUD revenue. If we adopt AUD/USD $0.70, then current LATAM USD is $31.6M, so we need 3 fold growth. CAGR over last 6 years is 46% so if that continues, $100M in 5 years is achievable.

As FDV is still at breakeven, I've looked at REA FY22 for an NPAT margin. They are 29% NPAT/Revenue. If we take 80% of this, FDV NPAT in 2028 could be $23.08M USD (There's a few big leaps in faith here, I know!)

But pushing on, with current shareholding (no raises), EPS is 0.06 USD. Adopt a PE of 15 gives us $0.91, discount to 2023 at 10% gives us $0.54 USD. Adopt $0.70 AUD/USD and we get $0.77 AUD, 11% above current share price. And this is only for LATAM. FDV ASIA, mainly Zameen, is currently 8 times larger than LATAM by EBITDA (2.5 times on an ownership basis) and MENA is approaching EBITDA breakeven so by 2028 I would expect it to be contributing to the bottom line.

I know the 5 years to $100M USD is a bit aggressive, but I think the PE of 15 is a bit conservative.

There is of course the issue of the consideration for previous acquisitions which could trigger a capital raising and blow out the EPS

On the other hand there is also the float of EMPG, which will place a value on Zameen which could be quite favourable for an full company valuation.

I'm hoping this will get picked apart so I've got plenty to think about for my next crack.

Held in SM and RL.

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##IMF
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Added one year ago

Increasing reports about Pakistan reaching an agreement with IMF by end of this week. These often drag on longer than expected, and it'll take a while before we see if their economic activity stabilities/improves or continues to deteriorate.

http://www.uniindia.com/rupee-to-recover-as-pakistan-gets-ready-to-seal-imf-deal/world/news/2915063.html

https://www.thenews.com.pk/print/1039759-rupee-likely-to-gain-as-pakistan-inches-closer-to-win-imf-deal

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#Solid quarter and year
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Added one year ago

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

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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.



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#4C
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Added 2 years ago

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.

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#Bull Case
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Last edited 2 years ago

Interesting observation from Nathan Bell of Forager Funds on his INES offer webinar (link, comment is about 39mins in) - acknowledging Nathan is a massive FDV bull and holder of the stock in (I think) all of the II funds he manages. I have adapted it a little to deal with LATAM only, which is the attractive part of the business for US investors. A recent release has reassured the market a NASDAQ listing is very much in management's mind.

Anyway:

  • FDV LATAM's CY22 revenue annualised from HY22 was AUD 44.6m.
  • If FDV LATAM was a standalone business on the NASDAQ it would likely trade on a market multiple for these kinds of businesses of 10x revenue
  • FDV LATAM would then be worth something like AUD 446m vs. current MC of AUD 230m after backing out 31m cash.
  • In addition to this, you are currently getting the rest of the business which includes Zameen. Will it get 10x? Will it list? The current MC leaves a lot of room for less than perfect outcomes.
  • The last transaction on Zameen (privately held) indicated FDV's interest was worth US 300m or AUD 470m at current FX rate. This is certainly a MUCH more risky bet given the current crisis in Pakistan, but it is at worst an option that should be valued greater than zero.
  • In addition to Zameen, you get the rest of the FDV Asia business. PakWheels is the biggest - also Pakistani, so same issues. MENA businesses are tiny (< AUD 5m rev) and unprofitable on an EBITDA basis so the remainder is probably also best considered an option, certainly less valuable than the Zameen option.


I continue to gain confidence from Shaun Di Gregorio's very substantial personal holding and the longer-term obviously superior economics of classifieds businesses. The transactional aspects of the business are growing strongly (8% to 10,166 transactions in HY22), albeit from a zero base, and Shaun's ASX microcap presentation included a comment that these transactions generate 15x the revenue of non-transacted listings.

If Nathan is right about LATAM and the Zameen business is worth what it was last time its owners transacted, FDV is worth 4x more than the current SP without attributing any value to rest of Asia and all of MENA. We clearly cannot invest assuming the best, particularly with businesses in frontier markets. But the current SP seems to price in the worst outcome in each instance and I continue to think it offers compelling value.

An outrageously busy YTD at work has kept me from the more detailed valuation updates I would prefer to share, but wanted to record my (and Nathan's!) less analytical impressions.

Edit: Held IRL and on SM (if that wasn't already apparent!).

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#the coming pain in emerging ec
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Last edited 2 years ago

Thanks for the insights, and your excellent summaries @jimmybuffilino and @ byrensty

I think the following piece articulates the risks to those rosy projections better than I can. Hopefully the largest markets for FDV will remain stable and not experience a debt crisis or social unrest. But Pakistan is a big risk, and much of Latin America is also at risk: FDV's two big drivers of growth. I don't want to come over all chicken little, but the EM debt scenario could deteriorate rapidly and unpredictably. Factoring this into your modelling might be prudent.

EDIT: just to add another depressing statistic, the IMF just released some stats on EM bond yields:

Fully 36% of EM bond yields are priced at greater than 10%. For comparison, in the depths of the pandemic FUD that figure was only 29%. So, for many countries, this is wholly unsustainable.

For a fleeting moment, the protesters seemed to be having a good time. On July 9th some of the thousands of Sri Lankans who had taken to the streets to express frustration at the country’s economic crisis stormed into the president’s residence, where they cooked, took selfies and swam in the pool. Not long after, word came that the president, Gotabaya Rajapaksa, had fled and would resign. His successor, Ranil Wickremesinghe, until recently the prime minister, inherits a mess. In April Sri Lanka declared that it could no longer service its foreign debt. Its government has sought aid from India and Russia to pay for essential imports. The economy is likely to shrink dramatically this year. In June annual inflation climbed to 55%. If the government is unable to stabilise the situation, the country may yet succumb to hyperinflation and further political chaos. 


The scenes in Sri Lanka may be a sign of things to come elsewhere. Debt loads across poorer countries stand at the highest levels in decades. Squeezed by the high cost of food and energy, a slowing global economy and a sharp increase in interest rates around the world, emerging economies are entering an era of intense macroeconomic pain. Some countries face years of difficult budget choices and weak growth. Others may sink into economic and political crisis. All told, 53 countries look most vulnerable: they either are judged by the imf to have unsustainable debts (or to be at high risk of having them); have defaulted on some debts already; or have bonds trading at distressed levels.

Today’s bleak situation has an analogue in the desperate years of the 1980s and 1990s. Then, as now, a long period of robust growth and easy financial conditions was followed by leaner times and rising debt burdens. Macroeconomic shocks, rising inflation and, eventually, soaring interest rates in the rich world pushed many heavily indebted poor economies over the fiscal cliff. In August 1982 Mexico’s government announced that it could no longer service its foreign debt. More than three dozen countries had fallen behind on their debts before the year was out. By 1990 roughly 6% of the world’s public debt was in default.

Much has changed since. Many governments opened up to trade, liberalised their economies and pursued more disciplined macroeconomic policy. Faster growth and better policy led to broad improvements in the fiscal health of emerging economies. By 2008, as rich countries sank into an intense financial crisis of their own, the level of public debt across poorer economies stood at just 33% of gdp.

This allowed them to engage with the global financial system in a manner more like the rich world. Most emerging-market governments hoping to tap global capital used to have little choice but to borrow in a foreign currency, a risky step that could quickly transform home-currency depreciation into a full-blown crisis. Around the turn of the millennium, about 85% of new debt issued outside America, Europe and Japan was not denominated in the borrower’s currency. But by 2019 roughly 80% of outstanding bonds across the emerging world were denominated in local currency.

As emerging economies’ financial systems matured, their governments became better able to tap domestic capital markets. The crises of the 1980s and 1990s also taught them the value of stockpiling foreign-exchange reserves; global reserves rose from less than 10% of world gdp in 2005 to 15% in 2020. It was thanks largely to these adjustments that most emerging markets weathered the slow growth of the 2010s and the shock of the pandemic. Only six governments defaulted in 2020—including Argentina (for the ninth time), Ecuador and Lebanon—equivalent to just 0.5% of outstanding global public debt. 

But this greater resilience also allowed governments to rack up more borrowing. In 2019 public debt stood at 54% of gdp across the emerging world. The pandemic then led to an explosion in borrowing. In 2020 emerging economies ran an average budget deficit of 9.3% of gdp, not far off the 10.5% run by rich economies. 

Borrowing stabilised in 2021 as economies rebounded. But the picture has grown darker this year. The jump in food and energy prices that followed Russia’s invasion of Ukraine is depressing growth across most of the world, increasing debt burdens. Rising import bills have drained hard currency from many vulnerable places—including Sri Lanka—eroding their capacity to service foreign debts. Conditions will probably deteriorate as rich-world central banks continue to raise interest rates. Hawkish turns by the Federal Reserve tend to diminish risk appetite and draw capital out of emerging markets, leaving overextended borrowers high and dry.


And Fed policy has not been this hawkish for some time. The federal-funds rate is expected to approach 3.5% by the end of this year, which, along with the unwinding of some recent asset purchases, would constitute the Fed’s sharpest tightening since the early 1980s. The emerging world has thus experienced net capital outflows every month since March, according to the Institute of International Finance, an industry group. The dollar has risen by over 12% against a basket of currencies since the start of the year, and is up by far more against many emerging-market currencies. As funding conditions have worsened, borrowing costs for some governments have soared. About a quarter of the low- and middle-income issuers of debt face yield spreads over American Treasuries of ten percentage points or more—a level considered distressed (see chart 1).

The combination of heavy debt burdens, slowing global growth and tightening financial conditions will be more than some governments can bear. One set of potential victims comprises the poorest economies, which have been less able to borrow in relatively safe ways—in their own currencies, for example—and which, because of the pandemic, were already vulnerable. Among 73 low-income countries eligible for debt relief under a g20 initiative, eight carry public-debt loads which the imf has deemed to be unsustainable, and another 30 are at high risk of falling into such a situation. Debt problems in these countries pose little threat to the global economy; together, their gdp is roughly equivalent to that of Belgium. Yet they are home to nearly 500m people, whose fates depend on whether their governments can afford to invest in basic infrastructure and public services.

Then there are the troubled middle-income economies in the mould of Sri Lanka, which are more integrated into the global financial system, and which through policy missteps and bad luck have found themselves exposed. Overall, 15 countries are either in default or have sovereign bonds trading at distressed levels. They include Egypt, El Salvador, Pakistan and Tunisia. 

Home discomforts 

More middle-income countries may be better insulated against deteriorating global conditions than they were in the past. Still, the imf reckons that about 16% of emerging-market public debt is denominated in foreign currencies. And the places that are more insulated have in many cases become so by funding borrowing through local banks. That, however, raises the possibility that any credit stress experienced by a government also feeds through to its banking system, which could in turn impair lending or even lead to outright crisis. Across the emerging world, reckons the imf, the share of public debt held by domestic banks has climbed over the past two decades to about 17% of gdp, more than twice the level in rich economies. Sovereign-debt holdings as a share of total bank assets stand at 26% in Brazil and 29% in India, and above 40% in Egypt and Pakistan.

Just how big this group eventually gets, and how serious the spillovers are to the rest of the world, depends on whether bigger economies, like Brazil and Turkey, are ensnared by crisis. Both have muddled through so far, despite some vulnerabilities, but poor policy could push them towards the brink.

As a commodity exporter, Brazil has benefited from higher food and energy prices. Its hefty pile of foreign-exchange reserves has so far reassured markets. The president, Jair Bolsonaro, trails in the polls ahead of an election due in October, though, and has loosened the country’s purse strings in an attempt to win support, adding to the country’s heavy debt load. He has also suggested that he may not obey voters should they decide to toss him out. If he spooks markets, an outflow of capital could at the very least leave the economy facing a severe fiscal crunch and recession.

Turkey has a dynamic economy and a modest level of public debt. But it owes a lot to foreigners relative to its available currency reserves. And its president, Recep Tayyip Erdogan, insists that the central bank keeps interest rates unduly low in the face of soaring inflation—which has climbed to near 80%. The lira has crashed in value over the past four years. Without a policy change, the government could face a balance-of-payments crisis.

Neither of the world’s largest emerging markets, China and India, is at high risk of an external crisis. Both have intimidating piles of foreign-exchange reserves. China’s government wields close control over both capital flows and the domestic financial system, which should allow it to contain panic, while India’s is only minimally reliant on foreign funding. Both, however, carry enormous public-debt loads by historical standards. And both matter enough to the global economy that a period of deleveraging that depressed growth and investment could have big knock-on effects.


Taken together, then, 53 low- and middle-income countries are already experiencing debt troubles, or are at high risk of doing so. Their economic size is modest—their combined output amounts to 5% of world gdp—but they are home to 1.4bn people, or 18% of the world’s population (see chart 2). And worryingly, there are few options available to ward off crisis. An end to the war in Ukraine seems a distant prospect. A growth rebound in China or elsewhere could be a double-edged sword: it would boost growth but also contribute to inflation, leading to further rate rises in the rich world.

Debt relief would help. Roughly a third of the massive debts owed by middle-income economies in the 1980s was forgiven under a plan put together by Nicholas Brady, then America’s Treasury secretary, in 1989. Additional relief was provided to 37 very poor countries through an initiative organised by the imf and World Bank in 1996. The g20 took similar steps during the pandemic, first with the Debt Service Suspension Initiative, through which more than 70 countries were eligible to defer debt payments, and then through the Common Framework, which was intended to provide a blueprint for broader relief.

Yet the framework has failed to gain traction. Only three countries have so far sought help under it, and none has completed the process. Prospects for improving the scheme, or for reaching agreement on debt relief, have been dimmed by the fact that lending by Paris Club countries—rich economies that have agreed to co-operate in dealing with unsustainable debts—has become less important, while loans from private creditors and big emerging markets, China in particular, have become more so. In 2006 Paris Club economies and multilateral bodies accounted for more than 80% of poor countries’ foreign obligations. Today they account for less than 60% of poor-country debt. Nearly a fifth is owed to China alone.

Indeed, work by Sebastian Horn and Christoph Trebesch of the Kiel Institute and Carmen Reinhart of Harvard University helps illustrate how massive and murky a force Chinese lending has become. They reckon that almost half of China’s lending abroad is unreported, such that their estimates of China’s claims on foreign governments probably understate the true figures. Even so, they reckon that from 1998 to 2018 China’s foreign lending, the bulk of which has gone to low- and middle-income economies, rose from almost nothing to the equivalent of nearly 2% of world gdp. And among the 50 economies most in hock to China, obligations to Chinese institutions amount to 15% of gdp on average, or about 40% of external debt.


More than a third of the world’s most debt-distressed countries also number among those most indebted to Chinese lenders. As of 2017, the debt owed to China by Kenya amounted to 10% of the latter’s gdp, and by Laos a staggering 28%. China is also a big creditor of Sri Lanka (which owed it the equivalent of 8% of gdp in 2017) and Pakistan (9%). Many indebted economies are loth to ask for debt relief from China, fearing the wrath of its leadership or a loss of access to future funding, and Chinese institutions have tended to prefer reprofiling debts to outright relief. Deteriorating relations between China and the West, meanwhile, have reduced the scope for co-operation in handling debt problems. 

In the 1980s, emerging-market defaults on loans owed to American banks pushed some financial institutions to the brink of insolvency. Residents of rich economies may take some comfort from the fact that their lenders are less exposed today. But for the billion or more people living in countries at risk of distress, the pain will be only too drawn out, both as fiscal woes infect local banks and as negotiations over external debt prove intractable. ■

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Valuation of $1.990
stale
Added 2 years ago

A delayed update following release of the 1Q 2022 Appendix 4C:

Brief overview

FDV owns part or all of 16 separate online classifieds portals, principal property and cars but some general classifieds. They are broken up into three geographic areas: Latin America (LATAM); Asia; and Middle East / North Africa (MENA).

FDV’s strategy is to take a minority share, prove out the capacity of the business to become a market leader, gradually increase ownership to majority or 100%, if possible. FDV now also has a major focus on transitioning its platforms to operate as the location for transactions of the traded asset. Management estimates that the take could be up to 10% and the margins (although undisclosed) are said to be substantial.

Key operating measures

Revenue is up 54% on pcp on a 100%-ownership basis. Q1 revenue was a record A$20.2m on a FDV basis, being an 83% increase on pcp, although this is flattered by taking 100% ownership in LATAM businesses. Q1 EBITDA was $0.7m, so marginal, but this is the second consecutive EBITDA positive quarter (FDV basis). 

The portfolio EBITDA margin here is something like 3.5%. However, these businesses are rapidly maturing and the most mature – Zameen – lifted margins from 10% to 17%. So I expect the portfolio margin to grow. All going well with the transactional revenue, there is no reason the margins could not be competitive with the likes of RE.com.au and Carsales.

Valuation

March 2022 revenue annualises at $88m. I have adopted that for CY22 revenue (probably conservative, CAGR since listing is 50% which I have maintained in my model), with margins at 5% this year and increasing by 5% each year to 20% by CY25. I have adopted a terminal rate of 5% thereafter.

This gets me to a present value of $707m which, together with the $48.1m on the books, gets me to a price of $1.99 per share.

I think this probably ends up being conservative as the cash on the balance sheet will be used to take 100% interests in existing businesses and accelerate revenue, as has been done with now-100% owned businesses. If the transactional revenue is anything like as good as management says, revenue could rocket up.

Looked at differently, my CY25 EBITDA estimate is something like $42.6m. Applying a 20x multiple, that would get us to $2.37 per share (including cash presently held).

To make the current SP of $0.81 (or $0.68 without the $48.1m cash) work: (1) revenue CAGR until end of CY25 would have to be 6% or (2) margins would have to stay static this year and increase to 7% only by end of CY25 or (3) some combination of the two (for example, revenue growth of 15% pa and margins growing from 3.5% this year to 16%, etc.) or (4) an earnings multiple of 6x. I think these assumptions are unrealistically conservative.

(For what it is worth, Nathan Bell at Intelligent Investor has a ‘sell’ price at $10/share).

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#director buying
stale
Added 2 years ago

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.

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#director buying
stale
Last edited 2 years ago

A nice vote of confidence that FDV is looking as good from the inside as it does from the outside. Yesterday director Anthony Klok bought 75,000 shares on market. His total interest is now 215K shares and 450K options.

And as reddogaustin pointed out with the quarterly, its all just incremental positives.

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Valuation of $2.50
stale
Added 2 years ago

This is a conservative estimate if they continue to deliver on their growth strategy and the momentum that they have generated in the 16 marketplaces they ow/part own continues as I expect it will. I think when all of these buisness are have positive cashflow then confidence in the strategy will increase and a rerate will occur. I consider this target to be reached by end of 2023.

Commentary from management is very positive and this buisness is really about backing Shaun Di Gregorio.

Shares on issue - 379.1m

Cash on hand - 54m

60.2m revenue (next target 100m)

Current price $1.12 - marketcap 443m

Price target $2.50 - market cap - 948m

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#Strong management
stale
Added 2 years ago

To me FDV is a bet on the strong management of Shaun Di Gregorio and team. I think he is a very quality operator and I like the way they tell investors what they are doing, and why and then importantly deliver on their milestones. To me this is a 2-5 year minimum story but I am confident that FDV will be a bigger and better business into the future. This company has the perception of risky as it operates in developing countries but I think the way they have their buisness risk spread across the globe and the quality of management makes me consider this to be one of my lowest risk holdings and expect this will have a share price of more than $2.50 when all buisnesses are operating in positive EBITDA.

A copy of the analyst call is available from the FDV website and is worth a listen. Shaun does a very good job of explaining what they are doing - below are my takeouts.

New geographical structuring of the business segments into three defined regions.

-Latin America (Colombia, Bolivia, Chile, Paraguay- 4 businesses)

               -1.1m + EBITDA

-Asia (Pakistan, phillippens, Myanmar, Sri lanka- 7 businesses)

               -2.8m EBITDA (5/7 companies + EDITDA)

               -Majority ownership of Hoppler (51%)

-MENA (middle east, North Africa + west Africa- 4 businesses)

               -2.0m EBITDA loss

-Transformation on track, bought AVITO in full just over a year ago – 4th quarter only 0.2m EDITDA loss vs 2.0m a year ago.

Target the uncrowded market regions (have avoided China, India, Mexico etc) and aim to buy/develop best in region marketplaces

Revenue of 60.2M à next milestone target of 100M/yr, exit runrate is currently 78M

-         Used Covid to increase the quality of overall portfolio, growing at rapid rate. FY22 aim for breakeven across the group and maintain and increase positive EBITDA over the next 12-24 months.

-         Strong balance sheet (>54m) and no requirement to raise any more capital. Last raise in December (53.9m @ $1.50 - Good timing and they have a history of raising necessary capital when share prices are high).

-         Thinks they are in a sweet spot coming into 2022, revenue performing well, intact strategy to grow each business.

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Transition to a transaction focused marketplaces from a more traditional market classified business on track and accelerating – gives them the opportunity to collect more of the total value of the transaction and facilitate required services (e.g home loans, pre-purchase inspections etc) and collect a fee.

They think about transaction revenue as the opportunity to fully facilitate the transaction in house within their platforms. To be successful the business needs to be market leaders and have the trust reputation àstrong brands + strong marketplaces = ability to improve the experience for the buyer and seller which facilitate transactions. Using technology to facilitate high quality matching to produce quality leads. Keeping the consumer in your environment and making them feel safe using you to process the transaction. Targeting 10-15% of transactions to be captured by the business will generate 15-20 times the revenue of the traditional classifieds buisness that gets revenue form only advertising.

Economics of the transaction business gets better over time à is expensive and time consuming to start up from scratch. Much easier to facilitate transactions when you a captive audience of sellers which is why they target and develop good market leading classifieds business and then transition to transactions.

Zameen (30% owned by FDV) continues to perform very well – 60m revenue à 51m is generated from transaction revenue. Commentary on Zameen is that they consider this will be a billion dollar standalone business in time.

Lot of excitement about Infocasis (owned for just over 12 months) and its successful transition to transactional revenue – Facilitated 1400 property sales in 2021 vs 185 in 2020.  They consider Infocasis has cracked the code on how to do transactional revenue and they are moving this technology and know-how to the other businesses within the Latin America group.

Talked about how the transaction revenue is still cutting edge and many other groups haven’t done it well but they are confident of how it is unfolding in Latin America. Transaction revenue is still a bit earlier in the Asian business. Commentary was this this has gone from nothing to something really quickly and they expect this trend will continue over the next 24 months.

 

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#Business Model/Strategy
stale
Added 2 years ago

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.

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Valuation of $1.950
stale
Added 3 years ago

5 Year DCF using 50% growth per year with a 5% discount. I assess FDV can sustain 50% if they continue to: - sell out of under performing websites with conviction, - continue to increase ownership of websites that are growing, - continue to invest in new countries and first movers in those countries with their proven 'copy and paste' formula.

This is the worst case or softer end of my DCF model. This would make FDV have a market cap of ~$690 mil. Can a company this size be that big? - yes it can - ASX:REA is $20 bil in size.

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#Restructure into three areas
stale
Added 3 years ago

FDV has announced a global restructure into three new divisions : LATAM, Asia and MENA.

Revenue is up $17.3 m or 248% on pcp.

They have cash of $17.2m and are approaching breakeven.

Founder and CEO Shaun Di Gregorio has experience with other internet companies and has big plans for FDV

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Valuation of $2.50
stale
Added 5 years ago
High Risk with strong potential. Valuation here also looks out a few years rather than 12 mths. FDV is a leading operator of online classifieds businesses in underdeveloped or emerging country regions. They team up with local partners with expertise in the regions in which they operate. This strategy helps to reduce risk and create a more diversified approach to seeking growth in markets which are still quite early in their adoption of the internet. FDV operates in a similar manner to that of CAR and REA receiving advertising revenue from two sources: the general sale of advertising space on their websites, as well as generating fees from the advertising of cars/houses on its platform. FDV currently invests in 14 online classifieds businesses across Asia, Central & South America, and the Middle East & North Africa. It’s level of ownership of these investments vary between 20% and 81%, however, the company is seeking to grow its ownership stake to 100% of each business. Late last year the company added to its existing ownership of two of its more successful investments Infocasas and AutoDeal that operate in South America and the Philippines respectively and have both recently started generating positive operating earnings.
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