Hello, and welcome to Vostok Emerging Finance Q2 2020. For the first part of this call, all participants will be in a listen-only mode, and afterwards, there will be a question-and-answer session. Today, I am pleased to present CEO David Nangle. Please go ahead and begin meeting.
Thank you very much, Operator. And hello, good morning, good afternoon to you all, and thank you for dialing in, as always, to our Q2 Results Conference Call and Webcast. I'm David Nangle, CEO of Vostok Emerging Finance, as noted. And I will take you over the next 15-20 minutes max, 10-12 slides that we presented for the quarter, give you an update on all that's going on in our world, and then open up for any questions that there are at the end of the presentation. The slide deck is online as I speak, and I'll bring you through onto the first slide, which is basically focusing on Q2, the strong quarter, and broad-based stress tests that we and, I guess, everybody else had out there in the world.
I guess the bottom line here is that we have a lot more clarity and confidence in all that we see. I think it's good to reflect back on Q1 and then kind of compare and contrast it to what we have seen and experienced in Q2. I think reverse back the clock to March when COVID kicked off across the world, obviously leading to all kinds of distress, volatility, uncertainty, and then predicted macro and corporate-level troubles. At that time, we, as a company, sat down with all of our companies and worked through pretty much the month of March with them because the implications hadn't really hit a lot of our markets until early April. March was very much a month of preparation for all things to come. The outlook was very unclear.
Hence, as a company and with our companies, of which we're on the board of all, we sat down and we pretty much had a wide range of scenario analysis of what would or could happen next, but pretty much we planned for the worst in terms of our next steps and then built up from there as Q2 moved through. At that point, as I said in the last call, the focus was very much on portfolio defense, securing, maintaining cash capital positions, and liquidity for the foreseeable future, and that was key. We were prepared and well-positioned for this test. I think Q2, as I talk about it, will show the outcome of that, and at the end of Q1, given all the moving parts, multiple currencies forecast outlook, effectively we took a 25% haircut in our NAV.
Fast forward to Q2, and now we're actually into Q3 with the month of July now complete. It was simply a much more confident affair. We have a lot more clarity on all, having lived at our company day on day, week on week, and through the quarter. Their moves, the impacts that they're having on their businesses from their markets, the data points coming through, so we can talk with a lot more authority and confidence about what we see and what we can predict and where we're comfortable, and obviously where still the issues may lie going forward, but actually, we sit back and look at the range of outcomes we had as we mapped it out in March. The delivery pretty much to a company has been towards the top end of that scenario analysis.
Obviously, there was a broad range of analysis, and there were some dark scenarios in there, but we're very comfortable on a portfolio and a company level that they stood up through this window, they delivered. And most importantly, from a numbers point of view, it's been impressive from what we can see. And specifically within that, from an NAV point of view, Creditas had a very strong Q2, and I'll talk about that name in a second, and obviously important for us, our NAV, our future. But also, as we've seen in many digital businesses across the world, some digital finance, fintech falls into that. Some parts within that obviously had a very positive experience of everybody rushing to do things digitally, distance, online, and away from cash, etc. And that was obviously digital payments-based.
And Juspay, our mobile payments company in India, and TransferGo, digital remittances across Europe, obviously stand out in this beneficial category regard. So I would say on a broad basis, and obviously not specific company by company, if we look at the performance of our companies in June and July, we're broadly back to start-of-year levels, January through March. These companies, the metrics, AUM, growth, etc., have basically come back to that level at this point in the cycle. And in line with that, in this quarter, we moved our NAV logically back to a growth footing. A lot of micro-level work done on this, but a 20% jump in our NAV quarter on quarter from what we saw in Q1. So I think the bottom line here on this slide is very much that it's very encouraged by what we've seen in our portfolio through this window.
Our confidence is growing, obviously, with their delivery, but obviously there's a natural overlay of COVID, what happens next on macro, and that obviously the implications for sectors and then companies. So obviously, we've got a caveat in the background that we don't forget. Next slide is just a reiteration of what we used to slide number three, a reiteration of what we stated in Q1. And this is the medium to long-term scenario. We'd always been investors in fintech, which is a long-term secular growth trend. We always believers in offline to online, cash to digital. And that was coming through gradually at a nice pace across the world. But one thing COVID has done for all things digital is really a step change in their growth, a step change in acceleration of that growth.
For an investment company like ours in a space like this, it's clearly medium-term positive for what we do, and we're seeing it even in the short term in a lot of our companies. For the 2 Q20 highlights and developments, just a summary here of highlights during the quarter and asset value, financial results, so some of the key numbers and events from the quarter. I think most importantly is a reiteration of what I said, a return to confidence in everything that we see in our companies and obviously driving of our NAV back in the right direction. Also, we did make two small investments in the quarter, but very small and in portfolio investments in TransferGo and Nibo, combined $3.3 million between the two in the form of convertible notes. Our NAV itself recovered to $223 million.
That's down from what we started at the start of the year, approximately $250 million, but up from the Q2 number, which was $186 million. So a 20% jump quarter on quarter or move. On the Swedish Krona front, obviously the SEK has been gradually strengthening against the dollar, similar to many currencies globally. And from a SEK per share, we ended the quarter Q2 at SEK 3.15 a share, but obviously the Krona continues to appreciate in value versus the dollar, so that's probably closer to SEK 3 plus or minus today. And cash position at the end of the quarter, similar to Q1, was approximately $20 million. That's cash and capital. Moving on, NAV evolution since inception. It's just a chart we throw into this presentation to show the gradual uplift, but the volatility obviously through this window for return to growth and a NAV of $223 million.
NAV and NAV evolution quarter on quarter, obviously important and a bit of color behind the various moves, both on a segment, country, company level, but obviously most important to what happened in our NAV, both in Q1 and Q2, was the evolution of Creditas. Obviously, it's a big asset for us, a very important asset for us. And the evolution of that story, we effectively grew in confidence with that story through the quarter. It's a company which is very in control through this window, actively pursued a strategy of going cash flow positive, which we love to see stress test companies actively just flicking a switch and moving to cash flow positive as it ramps down its customer acquisition expense and focused on benefiting from the portfolio it built up historically.
It watched through the quarter as asset quality remained more or less stable and funding lines stayed open. So it was a very healthy stress test and helped with a lot of confidence in that name to be able to get back on a growth footing from a forecasting point of view. We were very cautious back in Q1. We're starting to move up the notches from low-end towards medium-end forecast outlook for Creditas. And also a name that we can have confidence in predictability into a 12-month view. And hence, that all fed through to a return to what was close to the investment round we did with the company 12 months ago, and our position moved up $30 million from just about $50 million to $80 million. And due to notable plays and beneficiaries of this window, as I mentioned, were digital payments.
We still have Juspay on our last investment round valuation at $13 million for our stake, but TransferGo increased by 58% to $21 million on our mark. And that's effectively a company which is in the digital remittance space across Europe, developed Europe corridors out into emerging Europe for the most part. And has just seen in Q2 a spike or growth in people's moves away from cash to digital in that space, and they're well placed to benefit and are benefiting from it. And it's a company that we didn't change our forecasts for through the crisis, and actually it's running ahead of our core forecast, which we set at the start of the year, never mind any adjusting through the crisis. So they were the big drivers of our NAV.
I would say from a sector point of view, where we've been more cautious is any company with a direct balance sheet exposure, because while fintech may be benefiting from the digital move by all, these are still balance sheet plays, and they do have classic macro exposure, and given the uncertainty that we've got rolling into the second half of this year and into 2021, those are companies which we've kept on a short-term bias in terms of forecasting, and we're staying conservative. We are valuing them on a 20/20 as opposed to a rolling 12 months, so keeping everything on a conservative, tight leash point of view, and that's names like Revo, JUMO, and Xerpa. So there's no specific offense to those companies. It's just the nature of the space that they're in.
Hence, we've got to be conservative with our forecasting and valuation until we come through the cycle and light at the end of the tunnel. Moving on to portfolio mix and commentary. What I'd say here is, of the $223 million of NAV, Creditas is now 36%. So it's our biggest holding and hence got bigger in this quarter given the move and will be important for us going forward. That's the natural way of companies like ours, investment companies, you tend to get standout through the cycle. In our recent past, it's been names like Tinkoff and iZettle, and they've become a bigger piece of the pie. Obviously, they're compounding as they even bigger move going forward. Konfio is at 13%, Mexican secured, unsecured, small business lender, and moving more broadly into digital financial services for small businesses. Then the two payments companies.
So there's a concentration growing around the top four at this stage, with top two about 50% and the top four being 65% of our NAV. We, as I said, $20 million at the end of the quarter. And while year to date, the focus was very much in Q2 on our portfolio companies, making sure they were stable, delivering capital, etc., for the fight ahead. Gradually, through Q2, as our confidence returned and clarity returned, the pipeline is starting to pick up again and our time spent on that is starting to grow again. Just from a regional point of view, Latin America now is nearly 75% of our NAV. And we've no problem with that given how high we hold Brazilian fintech ecosystem and option opportunity. We hold it in super high regard.
We've no problem with company, country, regional concentration if we are strong believers of the value that we can create in that space. Moving on to the share price, NAV per share discount we're trading. From a market cap, we went back above $200 million in this quarter, so moving back positively across that line. Obviously, day on day, these things tend to move, but trading a much closer discount to NAV, around 10% plus or minus. And there's a lot of work being done on our side to make sure the story is out there, is getting communicated properly, research, investors, awareness. And that's starting to pay dividends as both the company delivers, our portfolio delivers, confidence returns, and with that, naturally, investors return and markets when they're efficient and help to make that happen.
Final slide before I open up the question is just outlook and guidance for the rest of 2020. I think it's worth reiterating the performance of Q2. It was very healthy. It was a healthy stress test and a strong portfolio reaction, both from the team at VEF and also our portfolio companies. With that reaction, with those data points, we naturally have more clarity, more confidence. And then obviously, the bigger top-down shift towards digital is a nice kind of tailwind in everything we do. This has all led to a more positive outlook for the second half of 2020 than we would have had at the end of Q1, just a natural factor of the performance and where we are today. So that all feeds into our confidence.
But at the same time, one needs to be very vigilant of what is a very fast-moving top-down environment that we all live and operate in, whether that's COVID, macro politics, or a mix of all three together. I think on a more micro level, Creditas is starting to shine even more. It's always a big part of what we are and the value that we're creating. But that's becoming even more obvious to us, especially through a window like this where it stood up. It's 36% of NAV. And if anything, we could see that growing in the future, given the trends that we're seeing in that name and the size it is at this stage and the compounding nature of that.
On digital payments front, clearly, 16% exposure of our portfolio to a very space that's just naturally benefiting from all the movements that are going on around us. I could mention many other companies here, but that's kind of 50% of our NAV and in a very strong position for us going forward. What I'd say is the 2Q NAV recovery was obviously important. I'd like to think it's at the beginning of a trend. One needs to be careful on forward guidance on these things. From everything we see on a micro level, we're very confident that NAV can keep on moving once the companies are delivering and the nature of these valuations compound from here. Obviously, we're very aware of top-down factors. Final point is investment pipeline. We're getting more and more back into pipeline. It was never went away.
It just got deprioritized for a window. Brazil and India are probably the two big markets we continue to spend most time on. We see most opportunities. And then in the frontier space, Egypt has caught our eye, and we've done a lot of work on that year to date. And we're tracking a couple of opportunities there, but I would naturally be smaller checks should something happen there versus India and Brazil. But at the same time, I think it's good to be patient in this environment. It's still a volatile environment that we operate in. And I think price points and valuations are more in our favor than they were before. I will stop there, Operator, and very happy to open up the questions from anybody who wants to ask.
Thank you. If you would like to ask a question, please press zero one on your telephone keypad.
If you wish to withdraw your question, you may do so by pressing zero two to cancel. That is zero one if you would like to ask a question. Our first question is from Joachim Gunell from DNB Markets. Please go ahead. Your line is open.
Thank you, Operator. And good afternoon, Dave. So to start off, I have a couple of questions. I mean, I guess new business models are emerging now in the midst of COVID-19. Could you just talk a bit more about which subsectors of fintech that will see higher growth in your perspective, and if there are any new subsectors perhaps that you want to add to your portfolio that isn't a part of it yet?
Yeah. No, thanks, Joachim. Appreciate the questions again. What we see mostly in fintech, first and foremost, you get payments and you get credit.
And a lot of the business and then investments maybe as a third pillar. And a lot of the opportunities that we've seen over time have been in those three subsegments and then derivatives therein. And I think through the COVID window, natural beneficiaries were payments, especially online, but even offline in the kind of iZettle style model, and across borders. So payments was very front and center as a beneficiary of this window and will, should continue to benefit, albeit maybe not to the full extent that they saw the spike in Q2 going forward. Credit, it really depends on where you sit and whether you're sitting secured, unsecured, geography and nature, whether it's on balance sheet, off balance sheet, etc. But generally speaking, credit's a place where there's some headwinds for sure. And those headwinds can be light or they can be heavy depending on the space.
And then investments. I think in a low interest rate environment globally, there's been a healthy shift towards both individuals, funds, but just investing in more interesting asset classes beyond classic bank savings. So I think the payments and the investments have seen the benefit of this window where loans is mixed. What I'd say is that I don't think we've seen naturally new segments come to the fore during COVID, but just obviously some segments catching your eye more than others would have been short term. But I think pre-COVID and during COVID, we're spending a lot of time in payroll. We like that space. Great, very low customer acquisition. You know the customer's payroll flow, and you can do a lot of things around that.
And that's going to drag us into the world of benefits as well, which is a very juicy business from a unit economics point of view. And we're getting into some of the deeper tech like banking as a service space. But I think in our portfolio, we've got a little bit of everything. And that hasn't been by design. It's a function also of the countries we invest in and the opportunities that showed themselves. But I wouldn't say we have a favorite sector or segment from here or what could come next, but definitely we're spending a lot of work and time, Payroll, Benefits, Banking as a Service, and then into investments as well where we're exposed via Magnetis on the Robo- Advisor front. But obviously, there's a lot more plays in that space now coming through.
Very clear.
Another question, perhaps talking about, I mean, deal flow and the financing landscape. I mean, we have seen some meager rounds in more established fintechs now. And I mean, seed investments and perhaps your area, say, Series A to B, perhaps even C, have come down slightly. And I mean, to me, it makes quite sense that investors want to put more money in, say, safer bets. But how do you think, I mean, about funding pullbacks for parts of your portfolio?
Yeah. Look, you're right. I think at the outset of this window back in March and April, you got a very quick move from the winners or best in class to say, "Let's grab more capital while we can.
Either build a war chest so we can make the most of this window or just have a bigger buffer for defense." So we saw those moves by the poster boys and include Revolut and a bunch of names in that. And it was the right thing to do strategically. You saw a lot of others' deals just being put on hold for the window. And that's no offense to anybody specifically. What I would say is there is a lot of dry powder on the investor side. So it's not like the public side and you might get outflows of assets and less demand. There is a pent-up demand pool looking at fintech and a lot of, obviously, new economy areas across the board. So I'm not worried about the pool of demand dwindling. It's there, especially for later stage.
But earlier stage, I think seed into Series A has been dropping off. I think for Series B and C, I think in a lot of our markets, there wasn't a great amount of capital in the space anyway. And we kind of like it that way. We tend to turn up the Series B to Series C level. And less capital can be quite advantageous when you're shopping. But from our portfolio point of view, everybody is well funded for the next 12 months. So may want to grab capital to be more aggressive now that they're seeing light at the end of the tunnel and a bit of a growth budding. And I kind of point to Creditas on that front, but there's a couple of others. So yeah, I think the capital is there.
I don't see any of our companies needing capital in the near term, i.e., 12 months. Those that think they want to raise capital, I'm quite confident they can get it.
Thank you for that. I mean, coming back to you mentioned that. Okay, some of the leaders obviously have, it's more accessible for them to get funding. Coming back to that, I mean, part of your portfolio is obviously starting to emerge as leaders in their respective, say, niche. Can you talk a bit about how COVID-19 has impacted, say, the competitive landscape? I guess it's hard to talk about for the entire portfolio, but for your winners, if we start there.
Yeah. No, I think it's. I guess if you have established winning names in certain spaces, then irrespective of how COVID affected their underlying business, I think it's obviously competition positive.
If your companies have capital in one way and are in good positions because you don't get the copycats, you don't get the fresh companies funded in this window, and if anything, the bank competition, which is the competition in many of our markets, is going through classic cycle stuff and going through classic listed bank playbooks where they have to focus on the next quarter and the next quarter as opposed to the five-year plan, which they'd like to focus on, but they're not allowed, and that means very short-term focus. That means turning off new ideologies and new lines of attack and reducing costs and really writing the loan book after quality cycle, so I think if anything, it's a better window. Three months ago, I would have argued that this is the window for the banks to win. They have the capital. They have the regulation.
They're in a great place to provide everything that the society needs in this window to get it through. And obviously, you come out as brand winners as well as just competition winners. But three months later, looking through the eyes of our portfolio and how the banks are operating, I actually think that it's a good window for the winners in our portfolio competition-wise.
All right. Thank you. And yeah, just final question, Dave. I mean, we touched upon this also, but in the trade-off between, I mean, returning or reassuming, I mean, multiple exits of growth versus a preservation of cash. I mean, can you talk a bit about how skyrocketing unemployment has impacted your holdings' ability to attract and retain, say, tech talent in LATAM?
Yeah. No, look, talent was hard.
Pre-COVID, it was exceptionally hard in a lot of markets globally to secure and hold on to the best talent, most specifically tech talent. When you have the top-down hoovering up by Facebook, LinkedIn, Amazon, of a lot of talent around the world, and then every country around the world having an ecosystem of new economy companies coming through, and then the ability to poach talent and raise the price of talent was all over the place, so it was very difficult pre-COVID. The initial part of COVID, it was obviously changed quite dramatically as a lot of talent found itself on the street, and I think now we're somewhere in between. I think a lot of companies let a lot of people go initially in the first part of this window. Some of them are starting to rehire, so I think we're somewhere in between.
But we're in a better kind of balance in terms of demand and supply for talent because it was going aggressively the wrong way. And the best talent, especially in the hottest of locations, when it's talking West Coast or parts of Europe, were getting very expensive. Now, we don't have that specific element in a lot of our geographies because they're less interesting geographies, to put it that way. There's less focus on them, but it is there.
Perfect. Well, yeah, that's all for me, Dave. Thank you very much, Dave, and have a great summer.
Yeah. Thanks, Joachim.
And just as a reminder, if you do wish to ask a question, please press 01 on your telephone keypad. Our next question is from Herman Wartoft from Pareto Securities. Please go ahead. Your line is open.
Hi. Good afternoon, David. And thank you for the presentation.
So a couple of questions from my side, just starting with the revenue forecast for Creditas. So just to clarify, are you now back at a similar 2020 and 2021 forecast as before the pandemic? And also, has there been any change to the forecast for the underlying segments? I think that previously, the Payroll segment was the one that was expected to grow the fastest in this time. Has there been any change to that, or how has that been?
Yeah. Okay. Let me talk, I guess, generally on this topic. If we go back to March, Creditas, when we sat down with them as a board and presented us with three outcomes, kind of a low, middle, high road on a very simplistic basis of how business could deliver through this crisis and outlook for 2020.
We had 2021, but the focus is very much short term and what we can see and what we can deliver. If we go back to Q1, when we did our mark-to-market model on Creditas, we would have focused on the low road just to be conservative because we just didn't know. And Creditas didn't know when we had planned. We backed ourselves, but we felt from a modeling, forecasting, and then valuation point of view, the low road was sensible. And this is in fairness to Creditas. They have a history of hitting the medium to high road, if anything. So we knew the history, but we didn't know the future given everything that was in our faces with COVID. In this quarter, we've notched it up to somewhere between the low and the middle. So by no means are we going overboard or stretching valuation. There's market multiples.
There's the currency in there, which are assumptions and do tend to move. But from a forecasting point of view, we've upped it about 40% in our models from where we had it in Q1. And we're also doing a 12-month rolling model now with Creditas because we have the belief, we have the data points, we've got some levels of predictability and outlook for it. So I would like to think that Creditas will hit their medium to high end, which is their what they do, is their history with us. But we're not going to go there yet in terms of forecasting. I think from the core business and what has delivered in Q2 or grown, I should say, overall, it's going to be very hard to answer that clearly because what we did at Creditas, we took a very deliberate view on Q2 and the unknowns.
We effectively switched off the customer acquisition machine. We reduced that by 80%-90%. Customer acquisition is how we build our loan book and our revenue flows over time. For those who could live off the revenues coming through from the existing book, which is the way the business works. Reducing that dramatically for Q2, turning to cash flow positive while watching asset quality, while watching the funding market and see how our clients behave was a great stress test. In that environment, we overly focused on maybe home, which is a safer product and better quality of auto and some payroll. It wouldn't be a fair ask the same question in one or two quarters, and we'll be able to tell in much more steady states which part is going in line ahead of our forecast kind of thing.
Yeah. All right. Yep.
I see. Thank you very much. And second question regarding. I see that you kept Konfio and Magnetis and Xerpa on the calibration methodology. So I'm wondering, I can see why you would keep the Konfio holding there since a lot of uncertainty regarding the unsecured space in Mexico at the moment. But what would you like to see for Xerpa and also Magnetis to be moved to a market model instead?
Yeah. No, it was more of a, I would say, as I said earlier, the ones that we're more conservative with from a forecast and valuation point of view are more the balance sheet plays, whether we're doing the calibration or whether we're doing the market model. So I wouldn't see calibration versus market model being a negative either way.
I would say the ones that were shorter-term forecasting, shorter outlook, and valuation are those direct balance sheet plays, so these will roll off calibration. I guess we're kind of thinking when we get to the 12-month post-last investment round. We moved from last investment round for a lot of our companies to calibration for those that weren't 12 months beyond it, but we're going to simply roll them off one by one, and what I'd say to kind of answer your question slightly differently is, Konfio is, actually. We're kind of holding back on that one. I'm actually very impressed by what they delivered through Q2, a very clear stress window for an unsecured SME lender.
But the areas they grew in that were on the front foot with getting a full banking license, which is key for being a broader financial services play. We're moving into different areas with the small businesses credit as a service and different advisory work for small businesses. So there's a lot going on there. And the funding side was excellent. They did very well on the funding side through this window. So it's only an asset quality cycle, I mean, only, but if that's just numbers, we have the capital and the wherewithal to deal with that. So I see Konfio coming out the other side of this very strong. And with Xerpa, it was kind of a situation where we invested in the business to really push down on growth of a new product this year.
But a lot of that had been delayed, obviously, by elements of COVID. So it's kind of like a delayed situation in rolling out their growth. And with that, obviously, we marked down the valuation. And just Magnetis, as you mentioned also, their AUM levels are back to pre-COVID levels. Business is back on the front foot. And there's a real equity and investment culture growing in Brazil, both from online brokers and Robo-Advisors, asset managers, and they're benefiting from that. So to answer your question or come back to the core of the question, in the next quarter or two, I think everything will be marked to market at that stage.
All right. Great. Very clear. All right. That's it for me. Thank you very much.
Super. Thanks, Herman.
And just as a final reminder, if you do wish to ask a question, please press zero one on your telephone keypad now. And there seem to be no further audio questions, so I will hand the word back to the speakers for any final comments.
Yeah. Thank you very much, Operator. And thank you, everybody, for dialing in or signing into the webcast. And thanks for your continued interest and support. And as always, if you have any specific questions or general, please feel free to reach directly to myself or to Henrik Stenlund, who's our CFO and Head of Investor Relations. Thank you very much.
This now concludes our conference call. Thank you all for attending. You may now disconnect your line.