Frontier Digital Ventures Ltd’s (ASX: FDV) largest shareholder, Catcha Group Pte Ltd, has sold around 50% of its FDV shareholding, resulting in a drop in the FDV share price.
As the great investor Peter Lynch famously quoted, “insiders might sell their shares for any number of reasons, but they buy them for only one: they think the price will rise“.
What does this mean for Frontier Digital Ventures?
FDV share price chart
State of play
Frontier Digital Ventures invests in and operates online classified businesses in emerging and developing countries or regions, which are markets at an early stage of online development, but with anticipated strong growth prospects like Pakistan, Myanmar, Morroco as well as South and Central America. The company’s current portfolio consists of 15 online classified businesses with the majority in property and the rest in general services and automotive.
The company completed acquisitions of three online classified businesses in November 2020, so it’s best to exclude these to assess its recent financial performance.
Since listing on the ASX in 2016, Frontier Digital Ventures’ portfolio of the 12 online classified businesses recorded its first quarterly profit in the 3rd quarter ending 30 September 2020 (3Q20). Despite the temporary COVID disruption in 2Q20, half of the portfolio businesses had recorded improved EBITDA (EBITDA explained) in 3Q20.
Sitting in Catcha Group’s shoes, it seems a bit odd to sell nearly half your shareholding when Frontier Digital Ventures appears to be on track to return its pre-COVID performance metrics and the share price was hovering around all-time highs.
It’s impossible for me to predict why Catcha Group sold a large chunk of its shares, so I would rather channel my focus on the business fundamentals and the founder’s strategy over the long-term.
Key player
Even though Catch Group sold a significant portion of its shareholding, FDV’s founder and CEO, Shaun Di Gregorio, did not participate in the sell down and maintains his 10.9% shareholding in Frontier Digital Ventures.
I believe the company’s main competitive advantage lies with the jockey, not the horse, given Shaun’s strong pedigree in online classified businesses, showcased by his experience in helping REA Group Ltd (ASX: REA) grow when he was a general manager and then spearheading the transformation of iProperty Group from a small online business into the largest online classified business in the ASEAN region.
This extensive experience seems to have equipped Shaun with the strategic framework and tools necessary to grow and optimise online classified businesses.
Shaun’s playbook is illustrated in the historical performance of two portfolio businesses, Infocasas and Autodeal, where he achieved stellar compound annual growth rates through unlocking revenue streams and implementing measures to control costs.
Prior to the three acquisitions completed in November 2020, Frontier Digital Ventures’ investing approach was akin to dollar-cost averaging by taking a minority stake in the company, and then gradually built its ownership in the business.
However, Shaun decided to take an uncharacteristic approach with full takeovers of three businesses located in Columbia, Morocco and Tunisia. It would appear Shaun heeded Warren Buffett‘s wisdom to investors to be “fearful when others are greedy, and greedy when others are fearful“.
FDV acquires remaining 43.7% interest in Moteur
Shaun has continued with his front foot approach by taking over Moteur, the leading new car marketplace in Morocco. This will enable Frontier Digital Ventures to facilitate greater control and collaboration between Moteur and Avito, the leading general classified player in Morocco.
This strategic play puts Frontier Digital Ventures in a strong position to maintain and expand its foothold over the online classifieds market in Morocco.
Final thoughts
There are a lot of distractions that sway investor sentiment and I believe this partial sell-down is one of them. Frontier Digital Ventures is being navigated by a capital allocator operating in his core area of competence, supported by a diverse portfolio of investments and strong and lean balance sheet.
I think the temporary blip in the FDV share price may present an opportunity to invest in an ASX growth share that is disrupting industries with long runways for growth. That being said, competition and execution risks are ever-present in such industries.
I would consider putting this on your watchlist if your portfolio has the appetite for an ASX growth share. Other interesting ASX share ideas can be found in this article, Are these 3 hot ASX tech shares a buy?