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.