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Edited Transcript of VEMFsdb.ST earnings conference call or presentation 15-May-19 1:00pm GMT

Q1 2019 Vostok Emerging Finance Ltd Earnings Call

HAMILTON Jun 19, 2019 (Thomson StreetEvents) -- Edited Transcript of Vostok Emerging Finance Ltd earnings conference call or presentation Wednesday, May 15, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David Francis Nangle

Vostok Emerging Finance Ltd - CEO, MD & Director

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Presentation

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Operator [1]

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Ladies and gentlemen, welcome to the Vostok Emerging Finance Q1 2019.

Today, I'm pleased to present David Nangle, Managing Director. (Operator Instructions) David, please begin.

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David Francis Nangle, Vostok Emerging Finance Ltd - CEO, MD & Director [2]

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Thank you very much. Good morning, good afternoon, everybody, and welcome to the Vostok Emerging Finance Q1 '19 Results Conference Call.

I'm Dave Nangle, MD, CEO of Vostok Emerging Finance. And what I'll do is, as usual, I'll walk you through a brief presentation for the next 10, 15 minutes on key events over the last quarter highlights, what's going on at our company, and then I'll happily open up for Q&A. The presentation is on our website as well as at the media for this.

Moving on to Slide #2, key events in Q1 '19 for the company and what's worth highlighting this quarter. We mentioned this before, obviously, but the key milestone in Q1 was our exit from Tinkoff Bank. We finalized the exit through Q1, albeit we have been exiting for the previous 12 months. It did complete our first portfolio exit, which is, obviously, the key milestone for any company like ourselves. Investing in great companies is obviously one aspect of what we do, but more important is exiting at much higher valuations. And I think Tinkoff is a great example of that. And we'll talk about more on that later on Slide #12.

And we also continued our share buyback into Q1. That's still open, but we stopped doing it for now given the recovery in our share price and the reduction somewhat in the discount to our NAV. But we've bought back slightly over 12 million shares over the last 12 months at an average price of SEK 1.89.

Two companies worth mentioning through Q1 that we put more money into. One is Nibo, a Brazilian accounting SaaS company for SMEs. We invested a further $2 million in that company during an investment round. And iyzico in Turkey, one of our biggest holdings. We invested $2 million crossing over from Q4 '18 into Q1 '19. In both companies, we now own over slightly 20% of each, and I think is great examples of where -- if something's working well for us, we back it harder.

Obviously, we're looking to populate our portfolio with winning fintech names. Most of those names are in our portfolio. As we see them up close and personal, we have opportunity to put more capital to work in them. And I think in the case of Nibo and iyzico, we're very happy to do that. And we'll support them further.

I think there's a been a couple of events post- the end of the quarter, which, obviously, are significant. One was FinanZero, a digital loan broker out of Brazil, which raised approximately SEK 100 million or just above $10 million and -- of new primary capital in an investment round. And that's obviously big news for that company, a company that we've supported from seed rounds, and we'll talk more about that.

And also Magnetis, our robo-advisor in Brazil, not just got an investment, but had a strategic partnership with Julius Baer, GPS Investment, their subsidiary on the ground in Brazil, which is a big deal for that company. And we'll delve into that further in this call.

Moving on to the next slide into financial highlights. It was a quiet enough quarter, not reflective of the busy nature of events going through at the company or which are about to happen in the near future of the company, but the quarter itself was quiet as now more or less track sideways quarter-on-quarter.

A couple of names up, REVO, Nibo, Magnetis, mark-to-model and mark-to-new-investment rounds and mix in there and Guiabolso marked down. But the net effect was broadly sideways in our NAV. You'll see our NAV per share did rise to SEK 2.93 per share from SEK 2.78 the previous quarter, and that's more function of the weakness of the Swedish krona as opposed to our dollar NAV rising over the window.

Moving on next couple of slides, which reflect our statements of account. What I would do is I'd move on to Slide #9, which is getting into our portfolio and portfolio commentary.

Looking on our portfolio up close. At this stage, what I would say is similar to last quarter, we now have a portfolio of 11 names after the exit of Tinkoff. It's well diversified still. There's no dominant name and as tend to happen in companies like ours. And it probably will happen in the future, another couple of names start to stand out.

We are starting to see those standout names when we point the names like iyzico, the online payments champion out of Turkey or Creditas, the secured loan -- the secured consumer lender out of Brazil. They're starting to break out versus the pack in terms of size. But also Konfio and JUMO are names that we've got very much our eyes on in terms of performing and moving up, up the pie.

And following the exit from Tinkoff, we are sitting on a strong cash position, $56 million approximately at the end of the quarter, albeit we do have much of that earmarked for opportunities, both internal and potentially external, as we go forward this year.

Moving on to the next slide, Slide 10, this highlights the diversification of our portfolio. And -- but I'd like you to look at Slide #11. And just to rehighlight the geographic spread of what we do, we are an EM fintech investors. But our portfolio, it's spread across many geographies. Approximately half of them in Latin America. Brazil and Mexico make about 50%. And the other half will be spread in EMEA from Russia down South Africa, includes both East Europe and Turkey. But Pakistan probably being the outlier for now as the one company -- or one country and company out of the subcontinent/Asia that we're in, but that probably is set to change.

In the next slide, we look at the Tinkoff exit. I think it's just worth highlighting again, this is a position that we put $19 million into back in 2015. And over the nearly 4-year period, we extracted an IRR of 65% and over 6x cash-on-cash return. It's an exceptional investment with a lot more to go in that story. We're big fans of the Tinkoff story. And I think as investors in emerging markets fintech and looking at fintech across the emerging world for the last 4 years, it's hard to find a fintech asset better than that of Tinkoff.

And I just think that it's -- in 1 week, we had made a lot of money in Tinkoff. But more importantly, the public asset, it's one that any investor can access yourself, that you don't need vehicle like us to do it. Our mandate is more in the private space, and that's where we're focusing the winnings from Tinkoff into our portfolio where we think there are future Tinkoffs in the making.

Moving onto Slide 14. We just want to take a small interlude and talk about our share price and corporate governance and investor relation. While the value in what we do and our focus is always, or predominantly, on finding new companies for the portfolio, working those companies. And looking for exits in due course for those companies, that's where the true value is created. We also have to be very cognizant of the fact that there is a share price, which, obviously, is backed up by the NAV, which were driving our company. And we'll take care of the markets, take care of our investors, new investors to make sure that there's a fair reflection in the market from the share price for what we're doing underneath on the NAV side.

So as we upped our game I think in the last 12 or 18 months, interacting with brokers, having more coverage from today's press, and now securities at Latin America and going to a lot more conferences and just seeing investors both locally, in Sweden, where we're listed, but also internationally. So a wide range. That has started to work, let's say, and support our share price, reduce our discount to NAV.

There's always cause and effect in these things, and we're always focusing on it. But we're very much out there deliberately getting our message out because 4 years into our story, we have a lot to talk about. We have an excellent portfolio of winning fintech names across the emerging world, a very strong track record, one big exit. And the market is starting to take note of that and reflected in our share price, which we're clearly happy to see.

At this point in the call, I'd generally just focus on 2 to 3 names in the portfolio and give an update on them. I think in this call, I suppose we're focusing on the larger names we have done in the past, whether it's Tinkoff or Creditas or iyzico. And there's been a lot happening in some of the smaller cap names, if you want to call it that, in our portfolio, and in small cap Brazil, specifically.

So I'd focus on FinanZero, Nibo and Magnetis. The first of which is -- let me -- a second -- is Nibo. And this on Slide 27, I believe, of the deck. And with Nibo, what I would say is we're recently in Brazil on a trip. I think Nibo is the name that we came away most excited about. Nibo focuses on small businesses in Brazil in the accounting SaaS space for them, effectively managing and maintaining the accounts for these companies and helping them in their accounts process, digitizing the data that they have.

And the small business space is one of the most exciting spaces in fintech across the emerging world. And there's not a lot of companies which are really adding value to small businesses, accessing them, accessing their data, helping them with their accounts, payments, credits, et cetera. So there's a lot of people focusing on us.

Nibo is one of the names that we've been held up, which gone at us through in innovative ways, which is through the accounts way. It's got a 100,000 customers and growing as the number of customer's up 5x year-on-year. So the growth is rampant in their story. They're clearly adding value to the small business space. It's an underlying SaaS revenue model at base and, let's say, won the group 5x last year. And it's got the biggest small business portfolio in the Brazilian market today and growing fast.

From the revenue side, there's so much more to be done there in terms of moving from pure accounting SaaS into potentially credit by our partners, payments, et cetera. So it's one that's got a very strong team on the ground in Rio. And it's really exciting from a small business perspective.

Looking next, we would look at Magnetis, which is also in Brazil in our small cap side of our portfolio. And this is a robo-advisor, delivering the investment products and advice -- and portfolio advice via digital channels to individuals across Brazil. And this is another company which just doubles effectively its AUM and customer base year-on-year.

I think the most important event for us and for them of late is the partnership and investment they announced with GPS on the ground, which is a subsidiary of Julius Baer out of Switzerland. This is exciting because this is one of the biggest private wealth managers in Brazil, more old world in nature versus the new robo-advising model we have. And I guess both companies saw the benefits of their experience, their customer base mix at our digital channels and the marriage of both of those can make in a strategic partnership. And they also took a minority stake within that.

So that was a big event for us. The kind of event and partnership that could do a step change in their AUM and their customer base from the very strong growth that we're seeing already.

And the final company I will talk about, lastly, is in in Brazil, but obviously has Swedish roots, and it's FinanZero. FinanZero is a digital loan broker in Brazil. It is very much like the Lendo model out of Sweden and the Nordics and the rest. It marriages the loan offerings from many bank partners in that market to many customers who are looking for it. So you get many offers in one place. You get to compare, contrast and exit in the middle and manage the end-to-end process.

Over the last -- we came into the story at seed level effectively almost day 1 and have backed them over the last 3 investment rounds. Effectively, the story is starting to break out. It just raised over $10 million from investors in the last 3 months with a big investment round for the company and for everybody involved. Now we own about 18% of that company. Now we look at their underlying trends, they've got more bank partners than ever, approaching 30, which is probably the largest digital platform for loans in Brazil.

The API integrations are growing, which are key for funnel conversion. The commission rates where they charge customers are growing to about 6% on average. It's just really starting to gain momentum and deliver. And as the leader in that space in Brazil, that's a very big space. Brazil has a $500 billion consumer loan market as a stand and growing.

So that's the 3 of them. And I just wanted to highlight some of the younger stories, which make up a smaller part of our NAV today. And -- but clearly, there's a lot going on in that part of our portfolio. And a lot of value being created there, and we're putting more money to work there. Well, we also talked a lot in general about the Tinkoffs, Creditases, iyzicos, et cetera, of this world.

A final point and just to wrap up, I think moving on to opportunities and outlook for 2019. This slide hasn't changed too much. But what I will say is we're 4 years into this. And we have a very strong portfolio of 11 names across different fintech companies and different scale economies. We're in some large companies like Creditas, iyzico, Konfio, which are very much #1 in their space in their respective market and growing comfortably double digits, triple digit and year-on-year.

I think it's good to know that we have the Tinkoff exit behind us. This is important because one thing is entering. It's good to show that we can exit and take money off the table when the time's right. iyzico, Creditas are 2 names that are starting to stand out for us and really drive our NAVs and become bigger names within the pie of holdings.

I think from a focus, pipeline and events, 2019 is looking a little bit more like 2017 where we were very active in investing with the previous 12 to 18 months being windows where we did a lot of work, groundwork, pipeline building. And you're seeing us put more money into current portfolio companies.

But where the opportunities are rising for us right now and where we're active is Brazil, again, to add to the fire that we have; and India, we're we've done a number of trips to this stage and getting a lot more comfortable with that scale, emerging market and the opportunities in it.

And I think on the frontiers front, I think Egypt is getting through an inflection point where opportunities are starting to come through as the government reform and economic stability backs up, basically, a growing ecosystem of opportunities and new economy, including fintech.

We're strong on cash for the moment, over $50 million. Albeit, a lot of that is earmarked and planned over the coming months in and outside portfolio. And I guess just -- we're generally well -- as well positioned as we ever are in terms of having the capital, having the track record, having the companies deliver in our portfolio. And with the capital, we have different avenues of value creation with that -- in our own portfolio in new companies and obviously, buying back our shares, which is something we've done -- are not afraid to do, we've done over the last 12 months.

I'll stop there, operator, and happily open to any questions from the audience.

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Operator [3]

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(Operator Instructions) There seems to be no questions at this point. I will hand the word back to you, David.

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David Francis Nangle, Vostok Emerging Finance Ltd - CEO, MD & Director [4]

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Thank you very much, operator, and thank you, anybody -- everybody, who dialed in for the call. And as always, we're always here to answer any questions that you have on an ongoing basis, but thank you for your continued interest and look forward to speaking to you on the next call.

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Operator [5]

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This now concludes our conference call. Thank you all for attending. You may now disconnect your lines.