Company Interview / Rate cuts could boost FDV's outlook

Key points:

Frontier Digital Ventures (ASX: FDV) reports narrowing losses and increased revenueRegional performance shows diverse growth, especially in Latam and PakistanInterest rate cuts could improve market dynamics, creating M&A opportunities

Shaun Di Gregorio from Frontier Digital Ventures states that the company has narrowed its losses by 85%, booking a loss of $1.4m. Revenue for the half year is up by 14% to $35.5m. Earnings increased by 92% to $1.7m, with no dividends planned for periods.

Shaun shares that Frontier Digital Ventures has seen positive performance in various regions. In the Latam region, strong growth and new product rollouts are notable. Asia shows mixed results, but improvements in Pakistan contribute positively. The Middle East and North Africa generally held ground despite tough conditions.

On global economic trends, Shaun indicates optimism toward potential interest rate cuts, which could positively impact the company’s market dynamics. While current M&A activity is limited, improving market conditions could create more opportunities for acquisitions.

Full unedited transcript:

0:11

Well, let's get some further detail now on some company results and operator online classified marketplaces. Frontier Digital Ventures has narrowed its losses by 85% from the previous year, booking a loss of 1.4 million. Company posting a 14% rise in revenue for the half year, reaching 35.5 million, while earnings increased 92% to $1.7 million. And it will not be paying dividends for the periods. And there we can see the performance of the share price off the back of that result today. Let's get some further detail on this results. Frontier Digital Ventures chief executive Sean De Gregory joining us now Sean, good to catch up with you again. Thanks for joining us here at Ospi. All right. So an improvement there. How would you describe it.

0:56

Yeah look it was an improvement on the corresponding period. We had good revenue growth. I think our statutory results, uh, add to that some of the equity, uh, associates that we have and our revenue growth was quite strong. I think underlying that was a really strong improvement in our profitability. Certainly at an EBITDA level, we improved our over 90% period on period. And then obviously at a statutory level like you had on screen, we reduced the losses significantly. So I think it was a period of continuing to build our business. Uh, trading conditions have been really interesting over the last little while, with interest rates starting to to or at least inflation moderating interest rates, hopefully to follow, we see trading conditions improving. So I think we've navigated the last period of time pretty well. We've continued to grow our revenue in all of our regions. We've improved our profitability profile. We've got enough cash in the bank. So yeah, we think we've seen through a period of, um, interesting, uh, markets to navigate. And again, we've we've grown and we've improved our

1:55

profitability. So we're pretty pleased on that front. Sean, let's just break down some of those regions that you do operating in, beginning with the Latam region. Give us the highlights there and potential growth.

2:09

Yeah. So that's our biggest region. Makes up a fair chunk of our revenue now and had really strong growth in the sort of the mid-teens range. Um, so that was really impressive. They've got a bunch of new products that we're being rolling out in these markets as well. So our model as you mentioned is online classifieds. But increasingly we do more and more around helping consumers not just search and discover houses and cars, but actually go and purchase them. So lots of new products are being rolled out in the Latin American markets and not only helped our revenue growth and also improved our profitability in Latam as well. So significant improvement on our EBITDA performance in that region. So that bodes really well to healthy part of our business, which we're really pleased with. All right. Asia, how do you see that at the moment. Yeah. Agent Asia has two buckets for us. There's our consolidated piece on our accounting, and then there's our associates. The consolidated part of the business grew quite strongly again, uh, as a region, uh, and improved its profitability as well, or at least held its profitability. So really,

3:09

in Asia, what we're doing is investing for a bit of growth while maintaining our profitability. We've got some, uh, associates or investments in, in Pakistan, which has had a really tough time over the last 12 to 18 months, but they actually grew for the first time in Q2 and obviously didn't come through in the half numbers. But that part of the world is looking much stronger for us as well. So good results. Um, in our consolidated Asia businesses and then much more improvement, much stronger results coming in. Uh, the equity accounted businesses that we have in Pakistan for Asia. Well, you mentioned Pakistan. What's going on then? Why the issue do notice is I mean, they're business. They're, uh, seeing revenue decline. What's the broader issue going on?

3:50

Yeah, over the last couple of years they they ran into some domestic economic issues where they had some, uh, some, some potential for default, which cascaded into, you know, inflation and interest rates and basically a perfect storm of what you don't want to have happen in a market. And it really knocked the property market around, which we're heavily linked to. Um, so our property portal business there suffered. But as I said, it actually grew again for the first time in 18 months in Q2. Second business we have there, which is Pacquiao's, which is, you know, online search for cars that actually continued to grow throughout. So really stormy economic conditions in Pakistan up until recently, what we have seen in Pakistan is year on year, uh, inflation is actually halved. So we're now in much, um, much more, uh, calmer waters. Interest rates are coming down, trading conditions are improving. So Pakistan is all upside for us now, but certainly did have some rocky periods there where where it was really tough. But we've seen our businesses grow in the last 3 or 4 months, which we haven't seen over the last 18 months. So we're much

4:50

happier about what's happening in Pakistan and really bodes well for the overall health of our portfolio as well. And Shawn, Middle Eastern, North Africa, how is that region looking?

4:59

Yeah, again held its ground. Been tough trading conditions. Um, probably a mixed bag for us. We've got a few businesses in that part of the world. A couple of them actually grew quite well. A couple of them had had really, uh, stubbornly frustrating halves, which probably have that affected the group or the portfolio of companies in Mena. But, uh, all in all, looking better in Q3. As I said, trading conditions in our markets have been pretty, pretty tough for the last 18 to 24 months. And I think as the some of the parts we've navigated that pretty well. Different regions, different nuances, but feeling much better about, um, the signals we're seeing coming out of places like, as I said, Pakistan and also Mena in in the early parts of Q3, however, you take a look at the global economy and there are still some concerns of a broader slowdown. Would that not be a potential headwind for your company? Well, you know, I. I'll take a broader slowdown ahead of what we've experienced over the last 18 months. It's been really volatile.

5:59

And I think if you look at the Fed Reserve, you're not going to I'm not I'm not an economics expert. I'm not an economist. But we can only observe what's available to us. And what we do know is that there's hints of the Fed Reserve and the US cutting rates, albeit slowly, over a period of time. We think that that trajectory is really good for us because, um, you know, the big, the big, the big factors that impact our markets, particularly when people are going online and searching for houses and cards, which typically involve debt and and involve confidence in the in the market, are heavily influenced. So so if we see the the early stages of those big financial markets improving, that bodes well just for the trading conditions in in our businesses in these markets. So when you're in emerging markets, it's never smooth sailing. It's never, um, a straight line. It's it's a series of moments. But we have one eye on the, on the longer play, but really important that those headline markers do look better than they have. We're not out of the woods, but we are seeing some improvements in businesses that did struggle when interest rates were higher. We're seeing those improvements because interest rates have come

6:59

off in a lot of our markets, and we think we'll continue to do so.

7:03

Sean, are you looking at further acquisitions or was more about consolidating growth at this point?

7:08

Oh, it's really interesting because, you know, consolidation of our growth has been our priority over the last little while. One would assume is the capital markets, um, see more liquidity if rates come off that things like M&A start to come more interesting. It's a bit of a mixed bag out there for M&A. You know no one with a great business is wanting to sell it at the moment. If you've got a typically not so great business maybe you are. So it's not a very productive M&A environment. But there's still some interesting things out there. And we continue to look. Um, but we've got to be, I guess, really sustainably able to deliver profitability and positive cash flows. And that's what we're we were at right now. And if you do that, then, you know, you get opportunities to do M&A. And I think at the same time, some of the big things that influence M&A, interest rates, cost to capital, etc. are improving. So, so, so it sort of looks interesting as we head into the latter half of this year into next. And are you looking further afield at all from your current global footprint?

8:04

Oh, we're always looking. I mean that's we built our business through acquisitions. So we continue to look. But as I said, it probably just goes back to the M&A environment where you can do deals. And right at the moment, doing deals is a little bit of a stretch. But if you get everything else right, capital markets improve, interest rates start to head in the direction we all want them to. Things get a bit more confident and, you know it'll be an interesting time should all those things coincide. And you know, we're sort of more we're far more bullish heading into the latter part of this year and into next than we've been perhaps over the last year or two. All right. I guess what I was hitting is you're not looking at, for instance, North America, Europe at this point.

8:41

We're not looking outside of our current geographies at this point in time.