Welcome to the VEF first quarter 2022 earnings call. Throughout the first part of this call, participants will be in listen-only mode, and afterwards, there will be a question and answer session. Today, I'm pleased to present David Nangle, the CEO. Please begin your meeting.
Yeah. Thank you very much, operator. Good morning, good afternoon, everybody, and welcome to our Q1 2022 results conference call. I'm Dave Nangle, the CEO of VEF. As per usual, what I'll do is I'll take you through a few slides from our deck, which is online now or available through the link.
It'll probably take about 10, 15 minutes on some of the more salient points to update you on all that's happened to us in Q1 and how we see things at this point in the cycle into the future. Then I'll open up at the end as usual and get some Q&A from the analyst and investor community. Kicking off on slide two, events over the quarter, a real mix. Obviously some top-down headwinds and then some bottom-up tailwinds.
The war in Ukraine, we can't escape that. It's front and center for the world, but also for us as a company. What I can say there, we've had PRL on this, is that it has an impact on VEF. Of course, it would have. We have exposure to the region. That exposure is small. As of this quarter, that exposure is zero. We have one equity holding in Russia, Revo, which was less than 2% of our NAV, and we had some Tinkoff bonds in our liquidity portfolio. Both of which are the going concerns. Tinkoff bonds are paying coupons, but we have decided to write both down to zero.
As of Q1, that's 2.3% of our NAV to zero as a result of Russia now living in a parallel universe and not really having a price point for any asset in that market, irrespective of how good it is. Now, we have one other asset exposed to the region, which is TransferGo, which does cross-border remittances. I'll get into this. It's 3.9% of NAV. It's been the implications of what's been going on has been net positive for money flow into and out of that region and for their business, more importantly.
From a NAV point of view, we end the quarter -3.2%, quarter-over-quarter at $738 million, broadly flat on a SEK per share because of the SEK movement, but on a dollar basis down. It's mainly because of our movements that we've done on our holdings in Russia, which I've just mentioned. Within a portfolio context, we added two new holdings in Q1.
These are ones that I flagged at the end of last year, both in Brazil, Gringo and Solfácil. I'll deal with them in a bit more detail later. We led the round in Gringo with a $12 million check, a $34 million round in Brazil's leading drivers one-stop shop app for drivers in that market.
We also took part in the funding round for a very exciting solar panel marketplace and lender called Solfácil in Brazil. We wrote a $20 million check for that. It was also a quarter where we had one of our portfolio companies raising capital, and successfully so. I know there's some headwinds out there in the market, a lot of talk about tough markets, but Abhi successfully raised $17 million in their Series A.
Another reminder, this is a company that we've backed since inception. We put nearly $1 million in out of $6 million pre post-money valuation, owning 15% of the company from the off. It's one that's been a great success story in one of those early stage markets where we're starting to plant seeds.
We also raised some capital in Q1 or just after Q1. This is our bond, our first bond, a social bond, sustainability bond at SEK 500 million, approximately $53 million. I've talked about the numbers, which is mainly down 3.2% on a dollar basis and flattish on a SEK basis, mainly because of the moves.
You look at our NAV over time, this is on slide four. It's generally been a gradual up and to the right story, with obviously windows like COVID, the initial part of COVID in Q1 2020, and then also Q1 2021, where you start to see some headwinds feeding through. Let's see what happens next, and we can get into that.
Also, we raised money in the form of direct placements in two times over the last 18 months, and that's in the green boxes there. The gradual trend continues, and we end the quarter at $738 million of NAV. For me, you know, it's worth making some comments because I'll deal with this later more in the Q&A with analysts, I'm sure.
You know, from a valuation and NAV, our mark at the end of this quarter. What to say? One is just pure and simple. We're very aware of the market that we operate in. How could we not be? We're a listed entity with a share price. We have analysts covering our stock, and we spend our time talking to public market investors.
Whether it's today, tomorrow, last year, we're always aware of market trends and their implications for us as a company. In tandem with that, we're probably seeing an overdue catch-up in private market valuations versus their public peers. There had been a dislocation. We all talked about it. We all hummed and hawed about it. We wondered how long it would last for, what was driving it, and now starting to close natural tendencies of markets over time. Three points to make on markets without being a lecturer.
You know, one is from a valuation point of view, you know, what goes into the valuation of any of our assets, whether we're putting new capital into them, or buying them on a quarterly basis. It's a function of three things mainly, which is company forecasts, currency, and then valuation multiples.
The multiples where we're seeing share prices falling in names across the board and multiples falling off as a result is one of three key factors. The other factors are just as important to any valuation point that you have for any company in your portfolio. We do like to decipher between short-term valuation multiples and true cycle exit multiples. You know, last year, short-term multiples were too high.
There's an argument where short-term multiples right now are too low. There's plenty of debate out there. We tend to invest at true cycle exit multiples. But both have their place, and we need to respect both at any point in the cycle. We just be very aware of that. In many cases, we think three forecasts have to catch up with the share price sell-off.
A lot of sell-off has been top-down, and we agree with that. Also a lot of the forecasts for a lot of these companies has to come down, and that will provide some support to multiples as we look forward. That's just a bit of a caveat. What I'd also say is just from an investment company, we've been in this for seven years, we are very comfortable marking our holdings and broad portfolio up and down at any point in the cycle. It's what we do.
We did a broad-based markdown at Q1 2020 with the start of COVID. What I'd say was different then to now, effectively, in Q1 2020, when the start of COVID happened, pure multiple share prices sold off, went off a cliff. Currencies in our world also went south.
The outlook for our companies, I wouldn't say it was uncertain, it was just totally unknown. We fast forward to today and what we're dealing with. Yes, we are dealing with a market sell-off, of course we are, we see that. Currencies have been moving different directions. We'll talk about that.
The future of our companies and the forecastability of them is obviously not 100% known, but it's a lot more forecastable than it was in, well, Q1 2020. Obviously on an individual company basis, true cycle versus last investment round, we've been very happy to move our companies north or south of that, based on a true and proper and fairness of valuation mark. We've marked GuiaBolso and Xerpa down aggressively in the past, for obvious reasons.
EasyCo and Juspay the other way, which were breaking out even though they were in that 12-month period post last investment round. You look at Q1 2020 and what have we got from a NAV point of view. We've got three companies where we moved our NAV position specifically on them. Revo we've talked about. It was mark-to-model last quarter. This quarter, it's mark-to-model, but it's a zero.
We have Nibo, which was mark-to-model last quarter as well. It's down 17% quarter-on-quarter, and that's mainly a function of multiples of peer SaaS players that it's comped against. FinanZero, which moves to a mark-to-model valuation. As we move one year on from their last investment round, it's grown about 100% since.
We've got some currency tailwinds, but obviously you've got the headwinds of multiples of a peer group of Brazilian fintech companies which works against it in the short term. A minor markdown there. What to say about the rest of the portfolio? We feel comfortable right now. We've gone through each holding with ourselves, with our audit committee, with our auditors, and we feel comfortable where we hold those companies.
One wants to get specific clearly and some transparency on that. I guess one can look at Creditas, which is north of 50% of our NAV. If we look at that at the end of Q1 on our numbers, it's trading about 8.1x next twelve-month revenues. Once again, short-term multiples, but that's what the market wants to focus on. You know, its peer group is trading about 6x.
That's the peer group we set against it. Nubank within that is its key peer, trades north of 10x. That's at the end of Q1. Creditas is growing faster than that group as a whole, significantly so. There's a growth premium therein. There's also a valuation discount to Nubank while there is a valuation premium to the average of the peer group.
Another one worth alluding to is probably Juspay. It's not in the presentation deck, but this is mobile payments in India. It's a company that's one of the loftier valuations, I'd say, in our portfolio. We don't nearly generally go above 10x, not because it's fundamentally so, but just it doesn't tend to happen with us. It's trading just south of 15x forward next 12 months' revenues.
You got names like dLocal payments company in Latin America trading close to 20x and Adyen close to 30x. We do think we're in the faster growth and also reasonably priced assets either at peer groups or discounts therein for the assets that we hold. Hence we're comfortable holding at the last funding round valuation on average.
If I look at Russia-Ukraine specifically, I think we've kind of, you know, talked about this a lot. I think we won't be talking about it too much in the future because we will have no exposure to Russia as of today, effectively, with our results coming out. All our Russian assets are zero. They are going concerns in that parallel universe that is Russia right now. We'll see what happens.
There is option value. We do own the shares in them. We are working with those companies. We sit on their boards. All that good stuff doesn't change, but we have no exposure to Russia, as of today. TransferGo, as I said, in the remittance businesses, with the diaspora, the moving parts of the Ukraine, the escalation there, migrants moving all over the continent.
You know, for someone like TransferGo who deals in migrant remittances, who's building a migrant bank, digital bank for these migrants over time, and this becomes a big opportunity set as well as some short-term benefits on the core money transfer business point of view.
Final point, just from a, you know, one obviously thinks about defense in a window like this, and how are we defensively positioned with some kind of positive tailwinds in there. I guess defense-wise, you have to look at our geographic exposure. We are 64% Brazil. We're over 90% Brazil, Mexico, and India. You know, this is something that we wouldn't have been historically, but we're kind of very long, healthier relative emerging markets.
Brazil obviously benefiting from the commodities trade, both food, oil, et cetera. Mexico benefiting from its geopolitical position close to the U.S., U.S. bringing supply chain lines closer to home. India just in a very strong place geopolitically in general. We translate that into how Brazil has been performing as a country year to date.
It's actually its equity market's been outperforming globally, been net positive year to date. The currency has been a big tailwind for a lot of our companies. I talked about Creditas. I get a lot of questions about Creditas and its peers falling 20%, 30%, 40% year to date. Then we talk about Creditas growing 20% quarter-over-quarter year to date, and the currency growing 18% quarter-over-quarter year to date.
Many moving parts to the net valuation that you come to. More from a defensive point of view, you know, this is where what makes us calm in this window. We've been through many windows like this before. Cash, cashed up. We have just raised the bond. We're sitting on $75 million of cash capital.
Our balance sheet at best has been strengthened, so we can sit back and watch and manage ourselves through this window. Then we look at our top companies, Creditas, JUMO, Konfio, Juspay, TransferGo, even Rupeek. Top six companies in our portfolio by size, by NAV, all raised hard in the second half of last year.
That puts us in a very strong position that they don't need to touch the capital markets this year. They may. That's possible that some of them may actually incrementally add more capital, and we'll see where the world goes. There's no one that needs to go out there and step into it. What we've seen so far, they're smaller companies with Abhi out there raising and raising successfully.
We've got a couple of smaller companies that we will put capital into, but none of our bigger ones need to be out there in what are difficult markets, as we can all see. From a share price discount to NAV, look, the markets are brutally efficient, and they do what they do in windows like this. We watch what happens to the share price. Their discount to NAV gone from a significant premium to a significant discount north of 40%. We just need to fight that with consistency and with delivery, and that will take time, and we're comfortable with that.
We can't actually fight it with buying back our shares right now because of our current listing structure on Nasdaq First North, coupled with our Swedish HoldCo structure, which would allow us to buy back our shares at these levels. That is something hopefully for the not-too-distant future when we make that move to the main board.
From a portfolio point of view, you know, we've added two new names. How does that gonna shake up the mix? Solfácil is a top five company in the portfolio, so a slight mix of the top end of the portfolio. Gringo will be a top seven, top eight company. But you can see that Creditas still dominate the 53%, and it and Konfio and Juspay are 71% of our portfolio at the end of the quarter.
A couple of words on Creditas because it is our biggest holding. Quite a quarter for that company. They did report their Q4 numbers, which obviously seems a long time ago, given that we're now in April, and we'll have Q1 numbers in the not-too-distant future.
They had a very strong Q4 for what it's worth, the end of the year, 3x growth last year in their originations and their credit portfolio. They're about $750 million of loan book outstanding. This is all in BRL on the deck, but they did about $250 million of run rate revenues in Q4. They'll probably double that, double year-on-year revenues this year. Growth in the loan book won't be double.
It'll be a little bit less, as they kind of consolidate and just, you know, look ahead, and grow. You know, not gonna do 3x growth. They'll probably do 50%-100% growth in the origination book, and that will feed through to 100% plus minus in the revenue growth this year. So still very strong, not as strong as last year, but then we're in a slightly more conservative environment. I get that and I support that.
Two new holdings is Solfácil, and this is one that I won't talk too much about it because they're gonna announce the round properly. We obviously were part of it. It closed before quarter end, so we included it in our quarterly report and in this presentation. It's a very interesting asset.
It's one we've been tracking for a while with our partners at QED and SoftBank in Latin America. It's in the solar space. They lend to individuals who want to buy solar panels and effectively can't afford them on the outright cost so that the individuals can put their payments over time for these panels. About a $5,000 panel stretched over 4-6 years.
Effectively, the payments are in line with utility payments, so there's no incremental net monthly spend for the individual. At the end of 4-6 years, you own the panel outright. Then you've got close to free energy in a country which obviously has a lot of sunlight, expensive and unreliable infrastructure for electricity. Hence, solar is a big early-stage under-penetrated part of that market.
This is the company that grew its loan book about 7x last year. Once again, this is secured lending. We always like this secured lending space for a purpose security against a loan book. They raised $100 million, in which we took part with $20 million. We own a small part of that company, but it's one of our most exciting new additions.
On top of that, we also invested in Gringo, which kinda goes back to the embedded finance theme that we've been talking about a lot. We're finding companies which are effectively. This is effectively a payments company. But what they do is they acquire individuals via their app. It is the driver's best friend.
They've got about 5 million downloads, 1 million active, and you keep your documents in there, your driver's license. You can register your car annually via it. You pay your fines. This is all done via their app as opposed to paper-based systems and going offline and queuing in offices to make these payments. That's. They get, you know, very high take rates on the payments here and once again, growing at multiples, year-on-year, last year to this year, and going viral effectively in São Paulo.
The idea is to be out into the rest of Brazil as they go and then add the product suite from therein. It's worth just a couple of words on Abhi. It is a smaller holding of ours, but it's an interesting playbook where, you know, markets like Pakistan, we are putting down seed investments.
This is our second. We're about to do our third in that market. It's our next investment to be announced, hopefully in Q2. This is one that in less than 12 months, you know, we've gone from a very small company valuation-wise. As I said, we put in $1 million into this company, grown 15% in early days, and now they're raising $70 million in total, at a valuation of $90 million post-money as per the press release, last week.
We're in Pakistan with the founders of this company. Recently spent a day with them. Very exciting what they're doing in the financial wellness space, growing the corporate partnerships like a weed. It's a great product market fit and a great team, in that market. Cool. Sorry, one second. Cool.
I just have a couple more slides. Firstly, on ESG, it was a big year to date for us on that front as we continue our journey, really around our issuing our first bond and it was a sustainability bond. It was a natural port of call and choice for us, as a company as we look to add additional resources to our capital base. It's 3-year bond, about $53 million on a dollar basis, well supported by the local Nordic market.
I think the sustainability aspect of it and the uses of that capital for financial inclusion and responsible financing went down very well with the investor base. We welcome all our new bond investors to the VEF story, and we'll be talking a lot more about ESG and the uses of that capital.
Some of it went into Abhi and their recent round, and some of it will go into Solfácil, and that round as it closes. Then finally, just, before I open up the questions, just, kind of a concluding comments. What I'd say is, you know, first and foremost, we had low exposure to the conflict region. That's obviously the first focus, and that's now marked to zero. I've said that a couple of times, so we have no Russian exposure.
Given everything that's going on, we're unlikely to have any Russian exposure, for the foreseeable future. That puts the downside risk on that regional exposure closed and over and done. From a defense point of view, we are well-funded as a company, and also our top holdings are well-funded. I went through the top five.
There's actually the top six, including Rupeek. On top of that, then you have Creditas, which continues to grow at a healthy clip. Grew 3x last year at the originations. This year it'll be in the region of 50%-100% loan book growth. On top of that, you'll get about 100% revenue growth as the average book will grow year-on-year about 100%.
Some very strong trends continue at Creditas. A slowdown from last year, but naturally so from a very high base and in some more uncertain waters in that market. Then obviously watch Konfio and Juspay. This doesn't change. They're our next two breakout names. Doing very well, well-funded in their respective markets and segments of choice.
You know, when it comes down to the headwinds, you know, sitting around with investors today, we're actually very relaxed and calm in this window. We're not negligent. We get the risks. We see what's happening in markets, but we've set our defense out very well.
We sit tight. We're very comfortable. We're in some very good quality holdings and assets. You know, ebbs and flows and valuations of them over time. We get that. It doesn't go up into the right in a kind of straight line. We see, you know, as much opportunity as we do risk. We're managing the risk first and center, and then we'll move on to the opportunity side of the equation for long-term value add for all involved.
I will stop there then, operator, and I'll pass back to you, so you can open the mic to investors, and I'm listening to any questions at this stage.
Thank you. Ladies and gentlemen, if you have a question, please press zero one on your telephone keypad and you will enter a queue. After you are announced, please ask your question. Our first question comes from the line of Herman Wartoft of Pareto Securities. Please go ahead.
Hi. Good afternoon, Dave, and thanks for a good presentation. A couple of questions from me. I mean, I appreciate the slightly more granular information here on the underlying approach for the asset valuation, so maybe I'll start with two follow-ups on that. Starting off, I mean, I understand that this window is different from the COVID window or the COVID outbreak in a lot of different ways.
But I would just wonder if you have some kind of threshold in terms of your value change, like what kind of drawdown of the different assets, where you would maybe reconsider taking these assets off the latest valuation approach. Also, I mean, you mentioned Creditas is 8x revenues and Juspay is at 15x.
I mean, could you also comment maybe Konfio in this regard so we get a good overview of the top holdings in the portfolio? That's my first question. Thanks.
Yeah. No, that's fair, Herman. Look, we look at all our holdings every quarter. We're shadow valuing them. We're looking at multiples irrespective of what we do on an investment round. We do an investment round, put money into a company, and we are doing through-cycle multiples, five-year-out forecasting and look and put a dollar to work for a 30% IRR.
Obviously through that cycle, you know, valuation multiples in the market will rise and fall like they went last year to a high ebb and this year to a low ebb. But we like to think through cycle we're doing the right thing, you know, for our capital and for our investors. But within that, I won't say there's specific thresholds that we look at. We just look at everything on a quarterly basis.
If we get to next quarter and for whatever reason, you know, we feel the need to change any valuation in any of our portfolio companies versus where they are today, yeah, we'll do it. Not small changes, but like, you know, if there's a dramatic change either north or south in either market multiples, forecasts or currencies that go into that input or maybe combine two or combine all three, we'd have no problem making that move or making that change. I think we've done that before.
I think this quarter was a quarter where we sat back and we were able to justify to ourselves, our audit committee, and our auditors that we were comfortable where we were at that point in time, and hence we stand behind there now, but I'm quite comfortable with that. I wouldn't get too specific on it, but very happy to move any of these names north or south, given the moving parts that we see.
From a Konfio point of view, Herman, if you don't mind, let me come back to you on that. You know, I gave Creditas obviously because it is our biggest holding, and it is our most public holding and one can back out or make their own forecast and valuations based on publicly available information.
I gave Juspay, it's not public, but I just wanted to give it in the kind of context of it's trading sub 15 x and you've got dLocal at 20x and you've got Adyen at 30x. We're sub kind of key peers at Konfio. Let me come back to you on that, separately. I just don't have it top of mind. My apologies.
All right, fair enough. Thanks for that color. Moving on, I have a question about Creditas as well. I mean, they released their Q4 numbers, and very strong, continued credit portfolio growth, and also the revenues grew quite nicely. I'm just wondering if you could dive a little bit into the contribution margin here, because that's declined quite a bit from Q3 to Q4.
I mean, they include a lot of things in this contribution margin, such as the funding cost, the servicing cost, the credit provisions, et cetera. Maybe you could just comment, like, if you think that this contribution margin will come back up again, or what are kind of the moving parts here?
Yeah, no, it's a very fair question on our biggest asset. What you have is a company which grew like a weed last year. Great growth on the volume side, the origination. You take that into 2022, and I think Sergio's on the record where, you know, we'll probably grow the loan book not 3x, but probably 50%-100% is ballpark what we can see or forecast given the run rate originations at this stage in the three different buckets. That will feed through to, I would say, a better top line. Last year was 3x. This year it might be towards 2x.
Still, you know, quite healthy growth, but no need to overpush it in markets which have high inflation, high interest rates, elections coming, so, you know, there's a lot of volatility, never mind the global headwinds. Brazil is benefiting from some of these things, obviously with commodity prices and food prices, which is the backbone of their kind of export base.
From a contribution margin point of view, Creditas has felt some pain. We're seeing that in the numbers now. We'll see it again in Q1. Where does that pain come from? That pain comes from a cost of funding dynamic, most importantly. That's the one that's been rising, it's linked to base rates, inflation, and that's been rising quicker than they've been repricing on the asset side.
It's a natural way for Creditas' book, the way it's skewed, where in a rising rate environment, they get squeezed, and then it peaks, and on the way down, it opens back up. I'd like to think we're there or thereabout in rate peaking. Creditas has been repricing aggressively the asset side. You get one or two quarters of squeeze before, I'd say Q2 into Q3, you're gonna start seeing that contribution margin open back up.
A slight pickup in asset quality and provisions as well. That's more negligible than the cost of funding aspect here. We are seeing asset quality across the board in Brazil picking up marginally, more so in the unsecured space, but marginally in the secured space.
It's really on the cost of funding versus the asset side margin. We are probably gonna see that kinda open back up. I'd say give it into Q3 is probably a safe way of looking at it, but Q1 will be the same again as Q4.
All right. Perfect. Very good. Very good answer on that point. Very, very good guidance. Just a final question from me is about your current investment pipeline. If you could just elaborate a little bit on what you see going forward, how many new portfolio companies you would like to add this year, and what's the current funding need among the existing portfolio companies?
Yeah, no, it's fair. Look, we're kind of busy as ever with pipeline in terms of opportunities that are coming at us, but I guess the conservatism kicks in in windows like this, as in, you know, the capital gets more and more precious. We're, you know, asking ourselves, like last year we asked ourselves, you know, we always have a 30% IRR threshold for putting a dollar to work, and last year we were just missing a lot of deals based on valuation. We kind of asked ourselves is 20% the new 30%, but we didn't go there thankfully.
We kind of come to this year, and we're asking ourselves is 40% the new 30% just because things are trading at low ebb multiples as opposed to mid-cycle multiples, so why the hell would we pay mid-cycle if we can pay low ebb? You know, to answer your question, we're busy in Brazil, we're busy in India, and we're getting a lot busier in Indonesia, and we'll have a team down there as a first market, new market we've done for a while.
Have a team on the ground there late May. They're probably three markets we're spending most time on. I think we'll take a bit of time. We will look for better value, deeper value. I think this crisis has some legs. You know, things can change every quarter, whether it's macro markets, share prices, et cetera. I think we're sitting on our hands probably for a quarter as we watch while getting into the pipeline. You look at our own portfolio, as I said, the bigger names are funded.
Probably the next big one within our portfolio to need funding would be Konfio, who may need funding to finance the acquisition of a bank should that happen. That would be a very exciting way to put capital to work for an asset which will be a bit of a game changer for them. That's not this year, I don't think, probably into next year. Some of the smaller names will need capital, and we've always seen Abhi raise capital, Magnetis will raise capital.
These are small checks for us, half a million dollars, $1 million, and there's three or four names in that category. We're also watchful for opportunities where, you know, these are windows where, you know, positions in names like Creditas, Juspay, Konfio, et cetera, you know, get spat out, secondary sales, the stock at discounts, and they're the kind of things we wanna be ready for, as well as buying back our own stock.
Yeah. That sounds very sensible. Okay, great. Thanks a lot.
Cheers, Herman.
Our next question comes from the line of Joachim Gunell of DNB Markets. Please go ahead.
Thank you very much. Good afternoon, Dave. Starting off, if we take, call it a slightly broader view, can you talk about what your expectations are in terms of, I mean, traditionally we have this lag in from public to private markets in terms of valuations. You comment on this where you say that, okay, it's in the early stage phase, it remains quite buoyant although, I mean, later stage the things have really started to dry up a bit.
With regards to the fact that, okay, obviously it's in the later stage category, your assets are really good at moving the needle on your NAV here. At least we, it's fair to anticipate that for the coming year. From a relative standpoint, what opportunities and risks do you see with this?
Wow. A lot in there, Joachim. Let me try and unwrap this. You're looking at. Well, the later stage markets obviously are ones that we've seen the biggest slowdown in the private space. That's just a function of, I guess. Well, inside our portfolio, nobody needs to raise, but I guess if there's companies out there in other people's portfolios or just in general, they probably don't want to have to raise right now because just look at your Bloomberg screen, and that'll give you a thousand reasons why you don't wanna raise in this environment or right now, and that can change.
I guess we don't have a lot of data points on the later stage, but they will start to come through in Q2, Q3, Q4 as certain companies out there in a variety of sectors, not just fintech, have to raise or do something dramatic, from the cost point of view or from the business point of view, or just simply fail.
We're gonna see those data points coming through, you know, as we go through the year should nothing else change, in the broader markets. We'll start to see some valuations out there and more depth. Everybody can find one or two out there right now, but just more depth to that later stage, valuation curve and what's what.
We've also got the public markets to look at, and that's what we look at, and one needs to be very cognizant of public market multiples and peers for our names. I think we've got to a point where, you know, as I sit here with the holdings that we have, you know, we've got some serious businesses in the portfolio, Creditas, Konfio, Juspay to name but three, and I can go on.
That's not just being a VC and being biased in your own portfolio holdings. Those companies, you know, have real businesses, real unit economics, real futures, and Creditas on a path to profitability. Very good shareholders in the public and private sense of the word, and don't need capital in this window. It makes us happy, to be in that place.
If you have to force raise for any company now, versus last year, premium versus discount, these are difficult markets. You're a price taker as opposed to a price setter. I think that's just what we see out there. I think more specifically than that, I think quality will still raise.
We had Rupeek, for example, in our portfolio, just the add-on. It did a raise in Q4, but it added on top of that, doing it now or it's about to do it. You know, at that round valuation, if that happens, then that's welcome because quality is able to raise, you know, at the last round or the most recent round or at a reasonable price. I think quality will still come to the fore.
People like Creditas, people like Juspay will still have demand for it, and we just closed an extension round also for Juspay, where they're bringing a bit more capital in the door at the recent round valuation. Makes a lot of sense. You just top up your capital you just raised in Q4, and when that money comes in the door at the same valuation, more quality investors in there. I think from our portfolio risk-reward, I think the risks. We're sitting back with all of them. We're focusing on strategy. We're focusing on extending runway, just in case if you need to raise in Q1 next year, let's make it Q2, let's make it Q3.
If you can top up your capital position, if you've just done a funding round, I would say with Juspay, Rupeek, and you can top it up. People are still knocking on your door, top it up, get a bit more runway, involved. Yeah, focus on the core. I think that's what we're doing with our portfolio companies. I think the risks, Joachim, is just the longevity of this.
Like if we're here sitting here talking in the next quarter and markets turn over another 25%, you know, if currencies go, if that hits macro harder and the outlook for our companies is worse, we're having a different conversation than we're having today. That's the kind of immediate stuff.
If it goes into 2023, you have stale markets, all that dry powder on the private side is spent, then you've got less demand, prices come off. These are all things that we're gonna have to look through and deal with as we go. The kind of what we showed today is kind of a static point at the end of Q1, which we believe is true and fair, and we stand by.
You know, these are very fluid markets, and we've been here before, and we've been here before in Q1 2020. Then we had a totally different market in Q3 2020, as everybody was predicting the end of the world in Q1 2020. Then we're off to the races again in Q3 and Q4. Not saying that will happen this time, but we just have to be cognizant and not get carried away and extrapolate on the way down or on the way up.
No, absolutely. I mean, people tend to overshoot both on up and on the downside.
Yeah
If anything, I mean, your core holdings, it seems like they recapped just at the right time here by end of 2021. That said, can you say anything about, I mean, if I mean, given that you're very long term, would it be reasonable?
Mm-hmm
to try to commit to follow-on investments in existing portfolio holdings at, call it, lower valuation and commit to down rounds in order to maximize, I mean, return on investment? I mean, how do you look at this phenomenon? Perhaps also, I mean, some comments about what's going on on the ground in, I mean, emerging markets, this, industry or the ecosystem here, where I guess-
Yeah
There's risk that a lot of entrepreneurs, et cetera, I mean, will be with, call it, yeah, people have an incentive to make things move upwards, basically.
No, look, that's all fair questions. Look, I'd like to think we're different 'cause we're public. I'd like to think we're different because, you know, permanent capital, long-term view. If we can buy Creditas stock for half the price, why wouldn't we? That's just good business. Same with Konfio, same with Juspay versus what we just paid for it.
If those situations come along, we're not gonna command Creditas to raise at twice the price because we wanna make it look good. We wanna buy those shares. We wanna buy the best quality shares at the cheapest price possible. You know, we'll deal with situations like that, and we're not, you know, we're not impregnable to that. Like, we've got 16 holdings in the portfolio.
How can you not find some pain through this window? I think we're sitting good right now, but, you know, it's a fluid situation and we've dealt with these things in the past, like Xerpa and GuiaBolso. You've gotta deal with them like you deal with the EasyCos and the Tinkoffs. But what I'd say is, you know, the feeling on the ground in these markets, local VC ecosystems are well set.
I'm thinking Brazil, Mexico, India, Pakistan. We've been to all those markets recently. Local funds who've raised in significant size, Monashees, Kaszek, Mountain Nazca, all the ecosystem in Pakistan all have raised $100 million funds, plus minus India. We talked to Sequoia and Accel. There's a lot of funding, dry powder built up, and the early stage is busy, and that's very busy locally.
It's probably the later stage, the Tigers, the SoftBanks, the Coatue, you know, some of the corporate VCs who had drift over the public funds into private to, you know, crossed over the fence. These are guys who are, you know, who are probably pulling back a bit, holding tight a bit, not to speak for these funds, and I'm not trying to, but it's more that side of things that I've seen a bit of a slowdown, I would say, or a bit of a risk-off moment. Let's breathe, let's watch, let's see what happens next.
Thanks, Dave. Just finally, I mean, it makes sense to I mean broadly your NAV on an aggregate level relatively unchanged quarter over quarter here. What I mean with that, the best way to look upon this going forward is, right, look at, okay, sequential development for fintech peers multiples. We look at the sequential quality revenue growth rate for your aggregate holdings.
In addition to that, we have the, yeah, basically the FX components. I mean, the net effect of that was actually rather flattish here in Q1, and I would assume that's the best way to keep track of this going forward as well. At what stage do you think that, okay, is it the 12-month period where you will actually move to mark-to-model, or could we see more companies move to mark-to-model already by Q2 although they haven't reached that timeframe?
Yeah. Look, your first point is correct. That's the way to look at it. That's the way to think about it. That's the way we think about it from a short-term kind of valuation stress test point of view. I'd probably look at something like FinanZero, which we just moved to mark-to-model.
It had all the benefits of, you know, we buy it at a year ago in a funding round, but at 12 months of growth under its sales and some currency tailwinds Q1. But then obviously some heavy pressure from the multiples against it that ended up at 9% down quarter-on-quarter, or from versus last investment round, which is, I guess, negligible in our world.
It is the way you think about it is the right way to think about it. Q2, I think, you know, let's look at the data in Q2 as it comes. You know, we sat down with each position and we felt good about ourselves in Q1. If we don't feel that way in Q2, we'll make changes. We're very open to changing things. It's just a function of data.
Sure. Can you say anything about the threshold for when you think that, okay, it's tangible enough to move to a mark-to-model already before we go beyond that 12 months since the last cut price?
Yeah. No, it's a fair question that, you know, obviously Herman touched on it as well. I would just say if we're not comfortable with the valuation based on the data that we see, which is basically multiples extrapolated from the valuation that we had it at versus what the market peer group says, you know, cross-reference or growth rates versus that peer group. If we're not happy and there's a big discrepancy. You're asking for thresholds specifically. I haven't got one top of mind. You know, we will move it, and we have done that in the past.
Understood. That's all for me. Thank you.
No worries.
Our next question comes from the line of Patrik Brattelius of ABG. Please go ahead.
Thank you. My first question is a little bit follow-up on the topic you just discussed there. Have you done any exercise where you looked at the whole portfolio now in Q1 and you valued it mark-to-model, how that would impact the net asset value?
Yeah. Hey, Patrik, how are you? This is what we do every quarter. Well, effectively it's what we do every quarter because we're shadow valuing these companies on the next 12-month revenue that they're delivering against the peer group with the currency baked in, and we have a mark of last round should we have gone around in the last 12 months and we're comparing it to it, and once they're in the same ballpark, we're comfortable sitting with our position as it was.
Effectively we're doing this every quarter. It's not like we mark something to the last investment round in Q4 2021 or Q3, and then we turn off the lights, and then we wake up 12 months later, and we go again into a mark-to-model. It's constant.
Okay. I understand. Given the answer to a previous question then, you cannot really disclose what the difference have to be in order for you to move then to a mark-to-model valuation, I guess.
Yeah. Yeah, look, it's not that we can't disclose them. Look, obviously we've got three analysts on with three analysts asking the same question, so the point is clear and made. You know, let us come back to you on that to all of you with something a bit more logical and clear to answer that. Because, you know, while we are comfortable with this, I know this is the window where one likes to get more detail, more transparency, double-click on everything. Yeah, we'll come back to you on that.
Thank you. You mentioned there in passing that you hope the relisting will be done in not too distant future. Can you share any more details on that comment? At which discount level do you see buyback as an interesting alternative? Like for example, if like, one of your comment here on the call, it sounded like where it currently is trading, buybacks is interesting, but like when we talked a year ago, that was not an option. Can you give us a little bit of flavor, where do you think that is interesting, please?
Yeah. Look, moving to the main board, it's, you know, we don't get to call the date on that. There's a process, there's a committee involved. They're doing their work on us. They will have recommendations and decisions made. Like, you know, I would like us to be listed on the main board this summer, and that's our goal, but not totally in our hands. If we get some feedback, we need to change some things about the company in order to get there. That may delay it further, but so far so good in the process. The plan, the hope is for this summer.
From a buyback point of view, you know, any dollar of capital that we put to work, we have a 30% threshold of what we're looking from an IRR point of view, whether that's putting money into new companies, current portfolio companies, or effectively buying back our own stock. I think on the markets today, we trade north of 40% discount to our NAV, an NAV that we stand behind as of Q1, so it's a no-brainer way of putting our capital to work by buying back our own stock at these levels.
You know, that will be north of 30% IRR, so happy days. We need to get to the main board to be allowed to do this. We also need to size what we do this and how we do this because while we do have $75 million of capital, it's enough, but it's not a lot. We need to manage that and buy back in an orderly, logical manner with all the permissions in place that we need from our board.
I know for banks they need an approval from the Swedish FSA in order to buy back shares. Do you need to fill out any lengthy requirement in order for you to be able to buy back shares, and has that process already started?
Yeah. I don't believe so, Patrik. I'll have to double-check and our counsel would say that, but no, I don't think we need to. I don't think we're in that bank category where we need to fill out those forms. I think it's we need the approvals in place. I don't know if it's AGM and board or just board approvals, but I'll check, double-check with Henrik and Helen and come back to you on that.
It is no covenant problem with issuing a bond and then using those proceeds to buy back the shares. That is not an issue either.
Well, yes and no, but I guess there's different ways of looking at this. We will put the bond proceeds to work in the manner that the mandate is for those bond proceeds. We're gonna be investing in sustainable finance, and there's a number of companies that we would put that money to work in.
Obviously buying back our portfolio, which is, I think, 70%-80% compliant with the bond framework for social. I don't know if that counts. We probably won't be using that money for buybacks. We'd be using that money just for directly investing in companies like Abhi and Solfácil, et cetera.
Okay. Thank you. That was all for me.
Super. Thanks, Patrik.
Just a reminder to all, if you'd like to ask a question, please press zero one on your telephone keypads now. We have no further questions at this time. Please go ahead, Dave.
Super. Thanks, Jerry. Look, thank you, everybody, for your time, this quarter, for your focus on our company and your interest. Thanks to the analysts, for the questions, deeper, and logically so at this point in the cycle and a bit of pushing around. That which is always welcome, and we can do more offline, and that's very welcome also. We get the position of the markets, we get the position that we're in.
We're feeling happy about ourselves, and I get the feeling that the market is also, and the question marks are coming around NAV today, NAV tomorrow. These are logical questions and stress tests that you should be doing as analysts and investors, and we're doing all the time in-house, and we can continue to debate that as we go.
Thank you again for your time, and look forward to talking next quarter.