Frontier Digital Ventures moves to optimise growing asset portfolio and surging revenues

Frontier Digital Ventures ASX FDV online classifieds business
Frontier Digital's portfolio contains 15 businesses operating in various jurisdictions around the world.

Establishing profitable online businesses in emerging markets has proved to be a challenge for many that have tried.

Invest too much, and the responsibility for managing a business in a foreign land with often entirely different cultural values can become overwhelming.

Invest too little, and you could forego the strong commercial upside emerging markets offer.

There is another strategy however, which involves partnering with local entrepreneurs and business owners with a view of maximising the best of both worlds. Online classifieds business Frontier Digital Ventures (ASX: FDV) is successfully doing just that.

The company recently published another market update for the year to date, with the go-to strategy of growing top-line revenue in full swing according to the company’s founder and current CEO Shaun Di Gregorio.

Frontier is a leading operator of online classifieds businesses in emerging countries or regions. Whereas some would term such regions as “underdeveloped”, Frontier’s CEO sees less-developed nations as the perfect incubators for online classified businesses that directly serve local customers as well as attracting commercial interest from abroad.

With a track record of building and supporting market leading online businesses, Frontier says it is an expert in the online classifieds space with a special focus on property and automotive verticals.

Its portfolio currently consists of interests in 15 leading companies, operating online classifieds businesses in its target regions.

Frontier Digital Ventures ASX FDV portfolio holdings
Frontier Digital’s current portfolio.

Its most successful ventures are Zameen, the leading property portal based in Pakistan, with revenue for the half year to June 30 of almost A$10 million and Encuentra24, a Spanish-language classifieds site in Central America.

Combined, these two businesses generated around $14 million in revenue for the half year to June 30, with Frontier placed as a cornerstone partner that provides both expertise, as well as operational funding.

Frontier reported revenues on a 100% portfolio basis of A$18.2 million for the half year to June 30, compared to A$11.5 m for the same period last year.

Funds on hand

To assist with its capital position, Frontier completed an oversubscribed rights issue earlier this year which successfully raised $14.4 million.

“This was a great outcome for the business in the first half. The funds raised will continue to help us progress our strategy, which is to invest more in the portfolio companies that are doing well and look to consolidate our existing markets as well,” said Mr Di Gregorio.

Portfolio optimisation plans

In a scheduled conference call with investors and analysts, Mr Di Gregorio pointed out that Frontier has embarked on the new year in a thrifty mood by setting out to acquire strongly performing businesses to supplement its existing portfolio.

He told investors that Frontier generated a touch over A$18 million in revenue at a 100% portfolio level in the first half of this calendar year, an increase of around 60% on a year-on-year basis.

Frontier listed on the ASX in September 2016 with an operational mantra that “looked at the online classifieds market through a slightly different lens,” says Mr Gregorio.

According to Frontier’s CEO, acquiring 100% of a business and running it in-house is not the most efficient way. Its far better to “co-invest in well-run local businesses operated by local entrepreneurs that have something good, but need a bit of expertise and a helping hand to build a scalable business.”

With several astute venture and acquisitions now complete, the company says it expects to see its market position undergo continued improvement over the coming months and achieve profitability at a portfolio level in the foreseeable future.

Speaking with Small Caps, Mr Di Gregorio said that Frontier’s portfolio revenue had tripled since listing two years ago and described the company’s EBITDA position as “manageable”.

Having made several acquisitions since its first business investment in 2014, Mr Di Gregorio said that Frontier had now optimised its portfolio and wasn’t “necessarily looking for new acquisitions.”

“Over this period, we have tripled our portfolio revenue, which puts us on track for about A$40 million at 100% portfolio level this calendar year. We have tripled revenue since we IPO’d and have had tremendous growth over the last two years,” said Mr Di Gregorio.

The company’s portfolio currently consists of fifteen investments which Mr Di Gregorio sees as a strong foundation for future long-term growth and strong recurring revenues.

“When we look at our portfolio, we generated a bit over A$18 million in revenue in the first half [of 2018], which is about a 60% increase year-on-year,” said Mr Gregorio.

“Our strategy is pretty simple: continue to grow our top line revenue, manage our businesses through to profitability, and as we do that, acquire more of the businesses that are doing well in our portfolio,” he added.

With its surging acquisition spree now more or less complete, the clear focus for the company is more so on “optimisation” rather than further acquisitions.

Seeking the next frontier

Frontier’s prime activity so far this year was investing in and developing online classifieds businesses in underdeveloped, emerging countries or regions which are markets at a very early stage of online development, but with anticipated strong growth prospects.

The company’s stated target markets and future operational space remains Asia – the fastest growing continent that is currently responsible for the largest population and wealth growth globally, as well as Central and South America.

Frontier has some, albeit limited, exposure to The Middle East and North Africa (MENA), where strong year-on-year growth rates again the main reason why its online classifieds investment business is expected to flourish.

George is an award-winning market analyst who has authored articles and editorial opinion pieces for multiple publications around the world. He has written about a wide variety of topics including financial markets, stocks, trading, politics and economics.