I’ve finally made time to watch and write. Thanks to @Strawman for organising the interview and asking many of my questions! My observations to offer are as follows;

Leadership. Shaun comes across as humbler and more relaxed in this interview. I didn’t find him ‘salesy’ or promising-under-stress, as I have seen in the past. I think this speaks to a lot of outcomes and hard work.

Value Proposition. FDV’s value proposition is the provision of Trust and Certainty. Hard for us folk with first-world-problems to sometimes see the true value of a company like this to their communities. You can trust a company, because its goal is to be reliable and make money… we can’t always say that about Government can we!

Future. Shaun has a product growth map. He knows where he wants FDV to go. He is still going for growth. Some would say its audacious, but who dares wins right? Since they have hit FCF, and if they can grow, when everyone else is struggling to grow, they are onto a good thing. The ambition is warranted.

Shaun highlighted that all indicators are positive; they’re #1, they have a road map, and they have customer trust.

Power of incumbent. Once your #1 all sorts of value flows;

- AI gain? gap to #2 stays the same, as you both implement AI (mostly for synergies, no killer app).

- National pandemic? #1 is typically the sole survivor.

- National interest rates hikes? Again, gap to #2 stays the same as it equally affects you and your competitors.

- FDV has seen competitors’ contract or go backwards in the last 24 months.

Think of FDV as three separate FDV’s; MENA, LATAM and ASIA.

Tech stack value to be had by region, as it matches cost benefits, product road maps, and importantly helps with sequencing across the businesses. LATAM and MENA have had tech stack synergies implemented, but not ASIA, as there isn’t a value proposition for this work yet.

Different stages for each region (even though they #1)

LATAM is revenue growth to 100mil.

MENA is grow before any more M&A (no target mentioned)

ASIA is to consolidate, as there is less evolved competition and no one has quite ‘cracked the code’ within the most populous nations; Indonesia, Philippines, Thailand, Vietnam.

Mindset differences examples.

-         Not all people in other countries use debt to buy houses! (vs most in Australia do)

-         Interest rates are relative. In Pakistan, they have gone from 20% down to 10%, which shows economic improvement. (vs Australia where we’d faint at 10%)

Summary. I reviewed my last CEO meeting notes straw. Much of the above is no-change. I think Shaun’s demeanor is a positive change. I think the acknowledgment of AI impacts is a positive. I think the division of regions and their execution has played out well. I think conditions are as set as they could ever be. If value is not reflected in the share price in the next 12 months, then I will be a sad red dog, and start to seriously consider opportunity cost impacts.

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.

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.

^ screen grab from the 4C.

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.

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.

4^th Quarter Results

Refresh on who is FDV

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

and operational guidance which leverages FDV’s deep classifieds experience and proven track record.

My points of interest from the Quarterly

1.     Record full year revenue of A$60.2m on an FDV % share basis, increasing 154% from A$23.7m in FY20. Point 1 is visualised below in Figure 1. Woah.

2.     12 of the 16 operating companies reported positive EBITDA in 4Q 2021

3.     A$14.9m of cash receipts in 4Q 2021, increasing 95% from FY20, resulting in only a modest operating cash outflow of A$0.8m as FDV approaches cash flow breakeven.

4.     FY21 saw an appreciation in the Australian dollar (AUD) across all local currencies relative to FY20, obscuring the underlying local currency growth of the operating companies. Notably, the AUD appreciated between 3% and 20% against the local currency in the countries contributing greater than 10% of portfolio revenue.

Assessment against my thesis and DCF model.

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. Point 1-3 prove that. My thesis has not changed. I am topping up on the current weakness. The DCF for my thesis has also improved as FDV continues to execute as expected, and even as I scale back the growth it still shows FDV is undervalued.

FDV are undertaking a CR and SPP.

AFR reports the raise price will be $1.50 per share, seeking to raise $30mil from the CR and diluting holders by ~5%.

Funds will be used to buy out Encuentra24 (Frontier currently owns 42.1 per cent of the business), balance sheet flexibility and deferred consideration.

Assessment. This fits with FDVs known strategy and investment thesis, to sell out of loser partnerships and increase size of winner partnerships. I'll be taking up my retail slice of the SPP.

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.