Speaker #1: Conference call. I'm joined as always by our CIO, Alexis Koumoudos, and we'll spend the next 20 to 30 minutes running you through the highlights of the quarter as well as taking all the questions that you have.
Speaker #1: Moving on to slide 2 of the webcast and the slide deck that's available online. Key events of the quarter: I put 4 key events here, and these lie below the headline NAV, which was flattish for the quarter and flattish year-to-date.
Speaker #1: And it really gets into the portfolio and then capital allocation. One credit ask, obviously our biggest holding, is continues to compound and is compounding at an increased velocity; we're now doing 26% year-on-year on the loan growth side and 30% year-on-year on the revenue growth side.
Speaker #1: And then below the top line, we're getting a nice level of AI-led operational efficiency, and it's becoming increasingly predictable. More moving from venture capital to private equity, and then on that path towards public equity and an IPO.
Speaker #1: Point 2 is this high level on a macro level. Clearly, the Brazil election is in full swing. A lot of the news and noise around.
Speaker #1: We did have the first round a couple of weeks back with a very market-friendly outcome, and the markets reacted very positively to a right-leaning government coming in from the current left-leaning government in place, with the currency rallying, rates forward curves dropping, and underlying fintech equities and equities on large, rallying.
Speaker #1: So there's fundamental and market-level positives behind these trends. The second round comes up this weekend. We'll get into that. Below the biggest holding portfolio, we like to highlight some of our smaller names or rising stars coming through, especially when they start to share more information.
Speaker #1: Abby, a company invested in 5 years ago, broke at the $100 million of total of average run-rate revenue mark, profitable. Over $10 million in the UAE, and it's got an IPO process in the domestic Pakistani mark, which is important for the company, which I'll double-click on.
Speaker #1: And then from a capital allocation point of view, it was really a quarter where we reached that milestone of paying back our bonds, very grateful to our bond investors for their support, and put in place a revolving credit facility, which is much more suitable to our needs, better size, mechanics, etc.
Speaker #1: So a real positive step in the old area of capital, capital allocation, and moving from paying down debt to buying back our shares. On slide 3, just the numbers themselves, not much to talk about because it's a broadly flattish quarter-on-quarter from a NAV, NAV per share in dollars.
Speaker #1: And in local currency SEC. So I'll pass the mic to Alexis because there's a lot going on under the hood of that NAV for slides 4 and 5 around NAV movements and the portfolio companies involved.
Speaker #1: Alexis?
Speaker #2: Thanks, Dave. Hi everyone. Yeah, just double-clicking a bit on the valuation approach that makes up our NAV. Essentially, the split between valuations market latest transaction and market model is relatively unchanged quarter-on-quarter.
Speaker #2: 71% of the portfolio is market latest transaction. 29% at market model versus 70/30 in the last quarter. There's one methodology refinement that we've had in the quarter, which is in Abby, which I'll come to in a little.
Speaker #2: Our two largest holdings continue to carry the market of recent and sizable transactions. That's Creditas. Which is held at the $108 million Series G.
Speaker #2: Both in December and just pay at its $50 million Series D follow-on, which was closed in January. And priced at our secondary sale in that round.
Speaker #2: Both marks are unchanged quarter-on-quarter. Both companies continue to deliver. Strongly post-raise. And we sense check both against traded comps every quarter. Within the market model book, Confier was marked down a further 5.1 million dollars.
Speaker #2: Two things drove that. The peso, which we can 3% against the dollar of the quarter. And the continued multiple compression across rates and the fintech comps.
Speaker #2: That drove the peer medians that we medians that we use to value Confier. But underneath Confier continues to deliver in line with plan and is reigniting growth.
Speaker #2: So as in the first half, the markdown is a function of currency and comps. The rest of the market to model book was mixed but net positive.
Speaker #2: Sold far still edged down a bit. With the same multiple pressure. And against that, Nebo was marked up and Abby marked up as well.
Speaker #2: Both on strong delivery. I think the one methodology refinement to highlight is that as Abby has crossed its $100 million ARR and is on its path to IPO-ing, the profitable Pakistani business, we have moved the valuation methodology further down the income statement as we did with others.
Speaker #2: And that's naturally evolution of how we value businesses. To incorporate a proper after-tax multiple alongside revenue multiple for Abby. And so that takes total market model valuations reflecting a multiple below the revenue line to 90%.
Speaker #2: Moving on to slide 5, just to take you through the NAV bridge for the quarter. As Dave mentioned, the headline for the quarter is that the NAV was down around 1%, pretty flat quarter-on-quarter.
Speaker #2: That was driven predominantly by good portfolio delivery, but offset by market moves. So as you can see on the detail on this slide, within the 29% of holdings valued at market model, the underlying portfolio performance added $10 million.
Speaker #2: In the quarter, against that, the multiple compression across our traded comps took $10 million off. With the pressure really concentrated in rate-sensitive fintech names.
Speaker #2: And ethics took a further $3 million off on dollar strength in the quarter. So delivery fully absorbed by the comp pressure and currency really was the difference.
Speaker #2: For a 71% of the holdings valued at latest transaction, with no new transactions in the quarter, these were held flat. And at the corporate level, cash was reduced $1 million which is the ongoing OPEX and coupon payments in the quarter.
Speaker #2: With no new exit proceeds, and the translation effect in the bond and our SEC liquidity balances next to zero. So that gives us the net-net kind of flattish NAV in the quarter.
Speaker #2: Back to you, Dave.
Speaker #1: Super. Thanks, Alexis. Yeah, well, it doesn't get too exciting at a NAV level, at least in the short term. I think what you'll see from the portfolio slides is that growth is compounding and that bodes well for NAV in the medium to longer term.
Speaker #1: At a high level, this is a slide we always share on the portfolio. Generally, self-sustaining, which is what we want at this point in the cycle.
Speaker #1: It's gone from that early venture stage of burning and growing and getting market share to now in this more private equity healthy growth but self-sustaining phase.
Speaker #1: That growth has really picked up across the portfolio. In getting into that 20% to 30% range across key metrics for biggest names. And they're out there raising capital.
Speaker #1: In the next 12 months, you've seen Creditas, and JustPay, a couple of others in smaller names. But we expect more in the next 6 to 12 months within the portfolio because our portfolio is performing and that does draw in capital.
Speaker #1: Specifically, we always have to talk about Creditas because it is important for everything we do at this stage. And these are the charts that we like to present.
Speaker #1: And it just reminds me of presenting charts for Tinkoff in the past and EasyCo. Those gradual up and to the right charts which we all know love and want to be showing.
Speaker #1: For our portfolio companies. But this is the ninth quarter in a row. Of sequential acceleration of growth from Creditas. It's now a 26% portfolio growth.
Speaker #1: 30% year-on-year that steady state of 25, 30% growth. So I wouldn't extrapolate into the next 20 quarters. But this is something that the company promised.
Speaker #1: And quarter-on-quarter-on-quarter, they delivered and it's been a joy for us to basically come out there and communicate that because it makes our life easy for our biggest holding and how well they're performing.
Speaker #1: As important below the top line of the business is the efficiency gains. We talked about Creditas and AI and Sergio's and a couple of really cool podcasts on this that I recommend people listen to.
Speaker #1: But the headcount is disappearing. As agents take the place of people across various lines of business from customer acquisition, customer servicing, collections, etc. AI into fintech 1.0 companies is having a big impact on operational efficiency and we're seeing a first-hand true-to-prism of Creditas.
Speaker #1: These charts speak for themselves. And I expect there's more legs in these charts versus the previous ones in terms of operational efficiency leverage. And that path towards profitability and beyond.
Speaker #1: And it's a very exciting not just top line Creditas but bottom line of Creditas. And all of these things are keyed to the formation of a company to get towards being a public company from a private company in due course.
Speaker #1: Bringing it back to macro level, we hate to get ahead of ourselves and we hate to focus on overly on macro, but our portfolio is a function of country level exposure and country level investor desire.
Speaker #1: Brazil is in a good place right now. It's election time, which means it's noisy, but the first round went towards the right. And the market reacted quite clearly as a scene that Bolsonaro will take the presidency the second round runoff is this weekend and we will see clear caveat.
Speaker #1: But what the markets said to us was from a market reaction on equities names are up 20% to 30% that are peers for our portfolio companies.
Speaker #1: The currency jumped 5%. Clearly, we've got a BRL portfolio. It's nearly 60% of our portfolio is exposed to Brazil. Creditas solved to seal NIBO.
Speaker #1: And they will benefit directly. Lower rates. Better for growth. Asset quality. Margins. Stronger currency. Better for translation. Better comps. You can extrapolate, but it's very clear that the Brazil trade is something that's in focus and our portfolio is exposed to it with the caveat that the second round is held this weekend.
Speaker #1: And then below Creditas, every quarter we like to grab a name and to put it out there front and center. Abby's been very especially when companies are sharing data, which is a private portfolio, Abby's been sharing more and more for a variety of reasons.
Speaker #1: But the group ARR is now above $100 million. The regional in the UNIDA Arab Emirates is above $10 million from a standing start with 18 months ago.
Speaker #1: And these are numbers from a company that we invested in from a blank piece of paper, $1 million investment. Five years ago into O'Meara and Sari and his team.
Speaker #1: As important and as exciting is that the local Pakistani business, which is a size part of the business, which is profitable and has a microfinance bank license, is IPOing or plans to IPO in the next weeks.
Speaker #1: And that's important for the domestic business, for domestic capital raising, domestic brand and customer, and for winning the Pakistani market. It's not a classic IPO, a group level and cash out.
Speaker #1: It's within the group, but it's a major milestone and positive for Abby and thus for VEF. We had to choose Abby versus others. I could have easily put JustPay in this quarter.
Speaker #1: He was having a great run at the moment, especially on the international side. We're international revenues are 20% now of overall revenue stream. So it's gone from nothing to 20% and international is really working as it expands outside India.
Speaker #1: I could have talked about Compio, which in Q3 is really put the foot down in growth and it's starting to come through and working capital and credit card volumes will lead them for Q4 as we go.
Speaker #1: Moving away from the portfolio, I'm back to VEF. Capital, capital allocation, capital ideology. I think we've been very clear with our messaging to the market on this front over the last, I don't know, three, four quarters.
Speaker #1: And I'd like to think that we message and then deliver and it goes hand in hand. But we did pay down our bonds. The outstanding $300 million SEC of bonds in Q3.
Speaker #1: Very happy to do that. I'm very grateful to the Swedish bond markets, international bond markets for supporting us through a window where we needed capital.
Speaker #1: And we have paid that down and replaced it with a revolving credit facility. A much more appropriate tool for this point in our cycle.
Speaker #1: It's obviously lower level of exposure. It's got better rates 450 and BIP spread over Cyborg versus 650. It's a flexible drawdown structure. So flexibility, cost efficient, lower rate, it's better.
Speaker #1: And all aspects of what we do. And it's an indication of travel of where we've gone from requiring the bond markets to not requiring them.
Speaker #1: Now having a revolving credit facility in place, which is better for us economically and from a business point of view. From a numbers point of view, we've got about pro forma liquidity.
Speaker #1: Of $11 million. At this stage, our net debt's about $4 million. At this point, the facility is $15 million. And we'll work on that basis and manage that around exits and capital position and capital needs.
Speaker #1: As we go forward. In focus for us very much is the fact that we trade at a discount. We do not like this. We're very aware of it as shareholders in VEF.
Speaker #1: And I think with what we're trying to do at VEF, our portfolio, performing, incrementally quarter on quarter, we communicate that. We deliver exits at NAV.
Speaker #1: The capital comes in. We pay down our debt. And then what do we do next? We move on to our shares effectively. It's the most obvious investment company one-on-one playbook.
Speaker #1: Not that everybody does it, but we have and not that you can do it all in one go. It takes time, but you do reap the rewards given everything we've seen from peers and over markets over time.
Speaker #1: But the exits have totaled over $50 million. In the last 18 months to two years, we believe we have more over the next 12 to 18 months.
Speaker #1: We've used that to pay down $300 million SEC, $30 million of debt. Now we're in a position where incremental exits and excess capital sits at VEF.
Speaker #1: We'll be moved towards capital return, capital return being buybacks effectively for the market. So watch this space. We're not making any formal capital allocation frameworks or capital return frameworks at this stage.
Speaker #1: We will tie that to exits and capital in. And the reality at the moment, as opposed to theoretically, in advance. And we just dropped in a slide on Georgia Capital.
Speaker #1: We are very aware of the investment company peers in Swedish market and international, both today and over time, because we're always looking for best-in-class and benchmarks to learn from, replicate, and benefit from effectively.
Speaker #1: And Georgia Capital is a listed investment company in the UK. But it focuses on the Georgian market. It's Georgia and the former Soviet Union.
Speaker #1: And it's a private equity fund effectively listed private equity fund focused on that market across multiple sectors. They've had a great run of taking their discount, five or six years ago, from over 60% to that 10 to 20% range.
Speaker #1: We're very close to that company. We've done sessions with them and their CEO. The feedback in the playbook is clear. About what they've done, the similarities to us, and there's clearly key differences.
Speaker #1: But we take the learnings for what they are. They had a performing portfolio. They first paid down their debt. But excess capital in, they bought back their stock.
Speaker #1: They kept on having a clear message. They kept on delivering on that message. Some nuances and differences in that they have a big public listed company in their portfolio.
Speaker #1: Something we would look to do in the future. It's been a performing asset as well. We've clearly helped. But a lot of lessons from Georgia Capital.
Speaker #1: And there's others which we'll bring to the table to show that we don't live in a vacuum. We're very open and aware of what works and doesn't work around the investment company world.
Speaker #1: And if anything, we're always going to be logical, process-driven, as we look to build our NAV per share and close the discount to NAV.
Speaker #1: And then finally, just to close off on everything that we've said, it's always all about the portfolio. I say this a lot, but without a performing, a quality and performing portfolio, nothing else really matters.
Speaker #1: And our portfolio, we are very comfortable and confident in that portfolio today. The quality of it, the growth of it, and the fact that fresh capital is coming in to strengthen it and give it fresh valuation marks.
Speaker #1: The exits, we talked about two years ago. It was empty promises and then we delivered. So now we've got traction. We've got market traction on that front.
Speaker #1: We believe we can do more. And then you start looking at those exits can do for us in the past. They have proven our NAV in theory in the market.
Speaker #1: They've allowed us to pay back our debt. Now looking ahead, they will allow us to buy back our shares. And start to close at discount NAV and give a decent return per shareholders.
Speaker #1: And then we can move forward from there, talk about medium to longer-term plans for VEF, but that's for another day. We will stop their operator and happy to open up for any questions that anybody has.
Speaker #2: Thank you, Dear participants. As a reminder, if you wish to ask a question, please press star, 11, on your telephone keypad. And wait for your name to be announced.
Speaker #2: To withdraw a question, please press star, 1, and 1 again. Please then bell will compile the Q&A roster this will take a few moments.
Speaker #2: And now we're going to take our first question. And it comes from line of Linus Sigurdsson from DNB Carnegie. Your line is open. Please ask your question.
Speaker #3: Thank you very much. And good afternoon. We're coming up on a year since the credit desk fundraise. And I'm assuming we'll see a slightly updated valuation there.
Speaker #3: And we've seen the encouraging financials in H1. But can you just remind us a bit over the past year how, say, your forward expectations have changed incrementally for credit desk and then perhaps if you could say something about how you think about the way the valuation backdrop has evolved?
Speaker #1: Yeah. Hey, Dana. How you doing? No, look, it's not lost. And it's something that we're focusing on. And speaking with our auditors on. Logically, it'll be in Q4.
Speaker #1: It may be in Q1. And there's some date mechanics there. But it's in the coming quarter or two quarters that we logically move from last round.
Speaker #1: To mark to model. I think the mechanics which feed into this one, you've got your starting point of the last funding round. And the valuations that fed into that, the currency at that point, the market multiple, etc.
Speaker #1: And that's a point in time, 12 months ago. But as you said, over the last 12 months, credit desk has been performing. Arguably, it's been performing according to plan, but it's been performing an exceptionally well.
Speaker #1: The flip side of that is that the comps, many of the comps have actually gone the other way, where multiples have actually fallen over the last 12 months.
Speaker #1: For many of those fintech names. And then you move to the fact that in this Brazilian election cycle, if we had valued credit desk just before quarter end in Q3 versus two days later, there would have been a 25% swing.
Speaker #1: We did a kind of a simulation math on it, which is, I hate that volatility in something like credit desk, which is the biggest name in our portfolio.
Speaker #1: So all in, we're not there yet in terms of our valuation lighter be Q4 or Q1. The underlying performance of the company is a tailwind for any valuation we come out with.
Speaker #1: Over the last 12 months, the multiples have been a headwind. And with the currency somewhere in between. So that's kind of where we're at without giving any forward guidance, if that's okay.
Speaker #3: Yeah, no, that's helpful. And then on JustPay, I recognize a lot of this value from these UPI fees could likely end up with the banks, but could you say anything about what kind of share, if any, would be feasible for JustPay to take in that environment?
Speaker #1: Yeah. What I'll do is I will let Alexis speak on this because he's on the board and in the details. And we've been we're just trying to be very cautious on something that's very top-down positive.
Speaker #1: We're still not a lot of micro-level detail. But Alexis, why don't you take the mic?
Speaker #4: Yeah. Yeah. Just provide a bit of context, right? So for the longest time, UPI, MDR has been mandated at zero. And finally, the regulator has allowed pricing and what he basically points are larger UPI transactions.
Speaker #4: That provides a $2 billion a year revenue pool. That will go to predominantly as you mentioned, the banks on the issuing and acquiring side.
Speaker #4: And also the UPI apps. There isn't necessarily a direct benefit to JustPay. They operate predominantly as a technology service provider for most of these participants.
Speaker #4: But historically, the payment infrastructure has had to be subsidized and funded from other profit pools of these entities. Now there's a very significant revenue pool that will help fund some of the infrastructure projects that JustPay provides and carries out for some of these users.
Speaker #4: And so I think our expectation is that once this gets implemented, the pricing power at JustPay improves pretty materially. But it's hard for us to say with certainty what the direct impact might be anytime soon.
Speaker #4: I think the other thing to note is that initially, it was planned to to be implemented from the 15th of October. And on the 13th of October, it was decided that it would be delayed.
Speaker #4: And rolled out post-Diwali. We still don't have specific dates which this will be rolled out. I think the expectation is somewhere between Diwali which is on November and the beginning of the calendar year, 2027, plus January.
Speaker #4: But that's another kind of moving piece here that's hard for us to forecast.
Speaker #3: Okay. That's super helpful. Yeah.
Speaker #4: Yeah. Net very positive. And tailwinds for the companies just hard to say with certainty right now.
Speaker #3: Understood. And then finally, on Comfyo, I mean, two quarters in a row with clear valuation headwinds. And you mentioned reigniting growth here. Could you perhaps provide some more context on what's changing there at the moment?
Speaker #1: Yeah. No, I think the valuation headwinds have been a function of multiples and FX as opposed to anything fundamental in the business. What I would say from a fundamental in the business, year to date for the first half, Comfyo is running behind our forecasts.
Speaker #1: And pointing to a stronger second half. Really, with AI implementation, capital in place on the funding side. And looking for the foot down on growth.
Speaker #1: So we were glass half empty in the first half. But then it flipped in Q3 to glass half full. And it really delivered on the growth profile of what they were pointed to for the full year.
Speaker #1: So not to get carried away, but basically, they're starting to put the foot down on growth kind of like what we saw credit us do three, four quarters ago.
Speaker #1: And we're seeing it through both the working capital book and the credit card book. It's been a very strong quarter. And given the indications from management, that should roll into Q4 as well.
Speaker #1: So we're back in growth mode. And that means Comfyo in the 30 to 40 percent growth mode is seen as maybe 25 to 40 percent.
Speaker #1: Similar to credit us and JustPay, where it was lagging in the first half of this year. So hopefully, that can give you a bit more context in Q4.
Speaker #3: Excellent. Thank you very much.
Speaker #1: Yeah. And sorry, just to wrap up on that line, it's kind of like a on a portfolio level, you're just kind of hearing all these tailwinds in credit us, JustPay, Comfyo, Abby.
Speaker #1: It's quite nice for us as portfolio managers to have these things to share. It's a good time.
Speaker #2: Thank you. Dear participants, as reminded, if you wish to ask a question, please press star 11 on your telephone keypad. And now we're going to take our next question.
Speaker #2: And the question comes line of Stefan Knutsson from Red Eye. Your line is open. Please ask your question.
Speaker #3: Good afternoon, Dave and Alexis and congrats on the underlying improvements. First up, the Brazilian election. Does it change your view on new investments in the country going forward if we have a Bolsonaro that ultimately wins next week?
Speaker #1: Yeah. I'm in New York this week, meeting investors. And there's a lot of people getting carried away with the impact of Bolsonaro on Brazil.
Speaker #1: We're trying to be level-headed while cautiously optimistic. Given everything we've seen in the emerging markets over time. But the fiscal focus of a Bolsonaro right-leaning government around government debt, rates, will be very market-friendly and will be very fintech-friendly in terms of growth margins, asset qualities, especially for the lenders.
Speaker #1: In that market. So yes, it would. If it is cemented this weekend, it would make us net more positive on Brazil, even though we've been in Brazil for 10 years through the governments of right and left.
Speaker #1: And there's a lot of fundamental positives. I think first and foremost, you have to look at it through the prism of the fact that we're very long Brazil.
Speaker #1: And we benefit on that front. But yes, it would make us more positive. And it would make international capital more positive, which would be good for both capital into the country and in theory, capital out in terms of IPOs and M&A.
Speaker #3: Very good. And then the other thing you were really clear about the buybacks priority going forward. One thing that is missing from that piece now, obviously, is liquidity.
Speaker #3: So can you say anything about how you think about potential exits, where you would like to focus, and yeah, how do you view it from a strategic point of view?
Speaker #1: Yeah. No, it's fair. It's not much of a buyback without cash, is it? But where we're at is I think what we've been trying to do with the markets over time is just drop breadcrumbs.
Speaker #1: Let them know where our mindset is. Where we're going to next. Where the direction of travel is. We did it with exits. Then we did it with debt.
Speaker #1: And now we're doing it with buybacks. Nothing's real until we have the exit and the cash on balance sheet to do them. So hence, we're not coming out with anything too deep and formal.
Speaker #1: It's just a high level ideology and direction of travel, which I think the market understands and likes. And regarding exits, I hate to pick timing of exits.
Speaker #1: In our world, because they're so volatile and so unforecastable. Even if you are confident on different ones and when. So what I just say is we're confident over the next 12 to 18 months.
Speaker #1: We will see more. A continuation of exits. But we'll hold back on anything a bit deeper on capital allocation until then, if that's okay.
Speaker #3: Yeah. Sure. No problem. And then lastly from me, really good case study on Georgia Capital there. I think it's quite resembles Schinnevik back in the days when it used to own a large chunk of Tele2 for cash flows.
Speaker #3: I mean, in your situation, do you see that, for example, credit us can become that holding for you in the future that can provide cash for you as a second liquidity lever?
Speaker #1: Yeah. No, for sure. I think there's many possible futures, clearly, for VEF. And one of them is one where credit us does IPO. We exit some in the IPO, but we've got a large listed asset in the portfolio that's near liquidity, probably pays dividends.
Speaker #1: And as an anchor, from a valuation perspective, because it's got a public market price. We had that when we began with Tinkoff Bank. It was a great experience.
Speaker #1: Albeit, we're very happy to sell it when we did and make a great return for investors. But that's whether we go there organically through the IPOs of credit us, Comfyo, JustPay, for example, or whether we go there inorganically in time, by the acquisition, potentially, of something listed.
Speaker #1: And that's beyond the short-term strategy. You can see how a listed company in the investment companies portfolio like what you said in Schinnevik and its glory days, with Tele2, is a great example of what we could do.
Speaker #3: Good. Very clear. Thanks for the presentation today.
Speaker #1: Super. Thanks, Devin.
Speaker #2: Thank you. Dear speakers and all further questions for today, I would like to hand the conference over to a speaker, David Nangle, for any closing remarks.
Speaker #1: Yeah. Just a quick one to say thank you very much for following us as always. Your participation, your patience, I believe we're doing the right things to have a better future for all our shareholders.
Speaker #1: So watch your space. Stay close to us. Any questions, feel free to come back to us directly. And we look forward to seeing you next quarter.
