Buy now pay later (BNPL) has become hugely popular in the last few years and market valuations on the likes of Klarna are eye watering ($45 billion the last time I looked). I think some of that is deserved as these tech driven operators are slowly but surely eating the lunch of the major credit card companies. Which is great news in my view! If this is something that does float your boat – and in fintech, there’s really only money to be made in either interchange fees or lending, or both – then it might be worth checking out a newish SPAC called VPC Impact Acquisition Holdings II.
Victory Park Capital is a long-established US house that has a focus on lending into non bank lenders (their VPC Lending fund has a good track record here on the London market). More recently VPC has been building up its pure fintech equity investments (some of which are in the VPC lending fund), based on the simple fact that it has a deep understanding of how fintechs lend out money – much of it provided via VPC funding. I suspect that gives it an edge that other fintech lenders don’t have – it gets to see those lending books and work out how many borrowers default !
As you’d expect VPC have spotted an opportunity in all the PIPEs and SPACs emerging out there , which is where this new vehicle comes in. Its basically a way of investing in Indonesia’s largest buy now pay later operator, Kredivo which is in turn owned by FinAccel. I can’t think of a better place to launch BNPL operations than the developing world. Most consumers don’t have credit cards but they do have a need to space out payments. Which is where Kedivo comes in.
Here’s some company highlights, which of course, we should all take with the inevitable big pinch of salt !
• Operates within a fast-growing e-commerce market (over 20% per annum) with the potential for $145B NMV by 2025
• Accelerating growth momentum with total user base doubling in the last 10 months and annualized revenue doubling in the last seven months
• Market leader with at least 50% BNPL wallet share across most of the major Indonesian e-commerce merchants
• Average customer transacts 25x per year on the platform, a far higher engagement rate than global peers
• Globally proven open-loop payments model with attractive unit economics
• Deep regulatory moat with licenses in core and expansion markets
• Proprietary AI-enabled risk models and collections processes delivering risk metrics in line with banks’, and the ability to scale risk models in other similarly credit deficient regional markets
• Brings demonstrable value and has a track record of being a superior solution for online merchants with 100% digital UX and automation
• Durable growth vectors with a clear pathway to synergistic expansion opportunities
The SPAC came to the market at $10 but is now trading below that level and I guess that at some point in the next six to nine months FinAccel/Kredivo will be reversed into this vehicle based on an equity value of $2.5 billion. There’s also a PIPE lurking in background (which included Marshall Wace) worth $120m. I can’t dig up much in terms of the underlying numbers at Kredivo at the moment but I would observe that $2.5 billion is nothing compared to the valuations put on Klarna.
You can find out more about the SPAC HERE – scroll to the bottom of the page for the management presentation which is on my lust to watch this week. All the usual SPAC related caveats apply of course!!
Lots of fibre oppos for D9
Back in the world of digital infrastructure, the scramble to raise ever more capital continues. Yesterday we learnt that D9 – one of my favourite funds – wants to raise yet more money, in this case another £200m through its placing programme. That would raise total proceeds to £675m.
Much the most interesting bit of the announcement came via this table below, from Liberum, which shows the pipeline in some detail. There looks to be nearly £1.5 billion of fibre related opportunities, either undersea or on land.
A deep dive into Tencent
Last but by no means least, I thoroughly recommend checking out the latest blog by economist and NYU professor Aswath Damodaran on Chinese equities. You can see it HERE. It’s a forensic look at Chinese equities and the obvious risks, but with a focus on the tech giants. The good professor doesn’t claim to be any China specialist but he absolutely IS a specialist on valuing stocks. It’s a great read which is very even handed, although I still think it might be a bit too positive about long term prospects for Chinese tech stocks. But hey who the heck knows what will happen next. What we can do is look at current valuations and say that all things being equal some Chinese tech looks cheap. That could all change overnight of course but the numbers are the numbers. The chart from Professor Damodaran’s blog is below.
Anyway the blog is admirably detailed but it’s the last part that interest me. I’ve already suggested that the biggest anomaly in pricing is for Tencent, and by default its European listed surrogate Porsus. The good professor agrees. Here’s his assessment.
“…if I had to pick one, I would pick Tencent over Alibaba for three reasons. The first is that Tencent is a more rounded company in terms of being in business mix, and I think that the WeChat platform, like the Facebook platform, adds a premium to their valuation. The second is that I prefer buying Tencent on the Hong Kong stock exchange to buying Alibaba’s Cayman Islands shell company on the New York Stock Exchange. The third is that while I admire Jack Ma as an entrepreneur, I am believe that personality-driven companies have an added layer of risk, since that personality can draw attention and fire. In fact, there are some who believe that the increased regulation of Chinese technology can be traced to Jack Ma’s challenging Beijing in 2020.
With my Tencent investment, I faced a secondary choice of investing directly in Tencent or indirectly buying shares in Naspers, a South African holding company. If you are puzzled about why Naspers enters the equation, the company acquired 46.5% of Tencent in return for a $32 million VC investment in 2001, and as Tencent surged in market capitalization, Naspers has become a proxy for the stock, with 80% or more of its value coming from its Tencent holdings. The one difference is that the market is discounting the holding by 20-30%, in Naspers hands, reflecting concerns about taxes due and corporate governance at Naspers. That discount seems immune to almost every attempt by Naspers to make it disappear; for instance, Naspers spun off a Dutch entity, Prosus, and endowed it with a portion of the holding, in an attempt to eliminate the discount, but the discount persists in Prosus as well, albeit a little smaller. I decided that the potential upside of hoping that the discount narrows over time is exceeded by the downside of creating an extra layer between me and my Tencent investment.”