Frontier Digital Ventures records second quarter of positive cashflow

Frontier Digital Ventures (ASX: FDV) is a leading owner and operator of 15 online marketplaces across three operating regions (Latin America, the Middle East and Asia) with a focus on property and automotive segments.

During the quarter, the company rebranded two of its three regions:

1. Frontier Digital LATAM to 360 LATAM with an ambition of becoming Latin America’s leading marketplace group

2. Frontier Digital MENA to MENA Marketplaces Group

Frontier reported its second consecutive quarter of positive operating cash flow, with all regions remaining profitable at the EBITDA level.

• 360 LATAM: Revenue rose 9% to $12.6 million in 2Q23

• MENA Marketplaces: Revenue rose 10% to $2.4 million

• FDV Asia: Revenue fell 49% to $4.2 million due to Pakistan’s ongoing economic crisis – ex-Pakistan revenues rose 18% to $1.4 million

Frontier has a 30% stake in Zameen – A real estate portal in Pakistan with 32x the audience of its closest competitor – the business generated approximately 13% of Group revenues in the second quarter.

Pakistan was hit by a balance of payments crisis in early 2023 as it failed to service high levels of external debt amid high inflation. In July 2023, the International Monetary Fund approved a US$3 billion bailout programme to help stabilise the economy.

Encouragingly, Zameen has remained EBITDA positive and experienced a 10% month-on-month increase in June revenues. Frontier says this indicates a recovery for Zameen, a lift in market sentiment and the business’ ability to navigate a subdued property market.

“Over the past year, we have achieved significant milestones, including optimising cost structures in 2H 2022, a successful A$17.1m capital raising, and completing final contingent consideration payments in 1H 2023. With robust fundamentals in place, we are well-positioned to accelerate growth into 2H 2023,” commented Founder and CEO Shaun Di Gregorio. 

A ‘Compelling Opportunity’

Frontier is effectively an REA (ASX: REA) and Carsales (ASX: CAR) of emerging markets, which the company says presents significant ‘population and economic tailwinds … driving the opportunity to leverage the classifieds marketplace model.’

But obtaining a worthy valuation is easier said than done. The stock is down around 11% since its 2016 IPO – During this time, the company has grown its revenue from $3.8 million to $76.5 million, coinciding with a stepchange in margins and cash flow.  

1851 Capital's Chris Stott described the company as a “very well-managed business run by Shaun Di Gregorio … and the sum of its parts is worth far more than the stock’s $255 million market cap,” as discussed on Livewire Markets. 

"The key to our investment thesis with Frontier Digital is their real estate portal in Pakistan called Zameen, which they own 30% of. We value that particular stake at around $400-$500 million compared to their market cap of $255 million," he says.

“They've got another 15 or 20 different assets in addition to Zameen, which we think clearly adds some great value to them over time and are performing very, very well."

Frontier is also taking valuation matters into their own hands and exploring potential ‘liquidity event options’ for each of its three businesses. This includes:

• 360 LATAM: Potential Nasdaq IPO

• MENA Marketplaces: Potential London Stock Exchange IPO, merge with competitor or trade sale

• FDV Asia: Support Zameen ahead of potential IPO of parent company, EMPG

Market Index helps small-cap ASX listed companies connect with Australian investors through clear and concise articles on key developments. Frontier Digital Ventures was a client at the time of publishing. All coverage contains factual information only and should not be interpreted as an opinion or financial advice.