Vef AB (publ)
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Good day, and thank you for standing by. Welcome to the VEF Q2 2023 Earnings Call and Webcast. [Operator Instructions] Please note that today's conference is being recorded.I would now like to hand the conference over to David Nangle. Please go ahead, sir.
Super. Thank you very much, operator. Good morning, good afternoon, everybody, and welcome to our [Technical Difficulty] presentation. As per always, I've got Alexis Koumoudos, our CIO, on this call with me. And together, we'll go through the investor presentation that we have on our website and the media platform for the next 15 or 20 minutes or so, and then we'll open up for Q&A and get your feedback.But going straight into it, Page 2 of the presentation, I guess the key events of the quarter, I'll go through these quickly before we delve into details as we go through the slides. But I think the key event for us in this quarter is the NAV evolution and has been the key focus point for the best story year-to-date, i.e., recovery. What we've seen at the quarter-on-quarter in dollar terms, up 17% and now 25% year-to-date, obviously, following the mood music in the markets where fintech-listed shares are performing higher. We've got currency tailwinds in the markets that we focus on like the BRL and the Mexican peso and obviously underlying company performance therein. And so our NAV at the end of the quarter ended up $479 million.And this valuation obviously moves across the portfolio. There's obviously standouts in this depending on individual company performance and how their peers move in terms of those multiples and the currencies behind that. The Konfio is clearly a standout, up 75% quarter-on-quarter; TransferGo, 35% quarter-on-quarter; and then Juspay at nearly 20%. But we did see a lot of these moves across the board and from a lot of similar tailwinds, just to different extents depending on different companies and where they were coming from.Creditas, obviously, is our -- still our biggest holding, our best holding, still a standout, but it's driving a more moderated path to breakeven. That narrative has been very clear, both from us and from the company and any public statements over the last few quarters. The last set of numbers were Q1, we'll talk about them, but there's [ now ] double-digit growth, we'll [ get a little ] handle on managing breakeven, and that's the right risk/reward at this point in the cycle as opposed to maximizing growth and burning capital at the back end.On the corporate governance front, we continue to move forward and strengthen the broader VEF team at this time [Technical Difficulty] welcoming Katharina Lueth to our Board at the recent AGM, great fintech and financial experience at McKinsey and an operator, and we'll double click on her and what she brings to the table in this presentation.And there's a lot of words here around our fights to the traded discounts. It's something that we take very personally, we focus on a lot, it is a battle. And there's a lot of areas that we can do to benefit to that and that's obviously around portfolio fundraisings at current NAV levels, increased transparency at VEF and at company level. The overall NAV performance obviously starts to extrapolate a trend and for the market to look at, given what we've seen in Q1 and Q2, and it's improving constantly our investor and public relations and we'll talk about that.On Slide 3, I think just from a numbers point of view, the numbers at VEF are very reflective of the numbers in the market where we've seen our peak -- our recent peak at the end of 2021, and we took a NAV, U.S. dollar point of view, $762 million, rounding up, and obviously came off with a pullback in 2022, half of that 50% pullback and now back to $479.2 million. And obviously, this is very much a function of being a mark-to-model venture capital listed company as opposed to one that holds legacy marks. We like to move with the markets and constantly have an NAV mark that is true and transparent and market-related. [ You see it from here ], per share point of view, which is obviously more important than the overall numbers. And in SEK terms, we're now at SEK 4.97 per share, up from SEK 3.82 at the end of 2022.From a NAV dollar point of view, the evolution, we focus on this chart because it gives a number of key takeaways. I think in the short term, what you're seeing from year-end 2022 to today, and clearly, I'm repeating myself here, but it is the main narrative, NAV recovery to $479 million, up 25% year-to-date. You look over time back to 2015, and you do see a NAV evolution and obviously NAV per share as well, up into the right, albeit more gradual. And then you saw the pullback after 2020 -- year-end '21 peaks. And that's once again, us being very true and fair and clear and quick to react to market moves and what is a fair market value for each of the positions. We did it during COVID, we did it again in 2022 and then we worked our way back up in line with market. So we can always stand behind our NAV.I guess a big aspect of what moves NAV both in the first half of '22 and the first half of '23, albeit in different directions, helping the markets and pure comps effectively. And whether you're looking at your generic S&P 500, up 16% year-to-date or 8% in the second quarter, or the higher beta tech, albeit it's certain stock heavy, 32% up year-to-date. Then kind of pulling it back to VEF and being fintech-focused, you've got the ARKF and the FINX indexes, ARKF obviously being a much higher beta index, but the FINX probably more true to form for what we are at VEF. You're seeing real double-digit growth year-to-date in those.And you bring that back to companies which are used to value the companies in our portfolio who are mark-to-model, and you've got names like NuBank, up 50% plus quarter-on-quarter in Q2, and even more dramatically, names like XP and Banco Inter up in [Technical Difficulty] companies which have been up strong year-to-date, which is indicative of the true and fair valuation of our companies as it reads through to them in our valuation marks.And before I hand to Alexis, this is just a breakout on an individual company basis. And you see a bit more micro level, the evolution of the valuation marks of our companies over time. And it is that year-end '21, fourth quarter '21, which [Technical Difficulty] at a macro level, but also on the micro level, whether you're looking from Creditas right through down to Rupeek and Abhi and you have the evolution from there as we pulled back in 2022 and now back on the front foot in the first 2 quarters of this year.Alexis, can I pass to you to take over for the valuation approach and can you take what's around this, please?
Yes, absolutely. Thanks, Dave. Hi, everyone. So just to re-emphasize our valuation approach, which is important in helping explain the NAV evolution that Dave's just gone through, with oversight from our auditors, we continue to follow what we believe is a robust valuation framework. And that is that within the first 12 months from completion of latest significant transaction, we use the latest transaction valuation as the foundation for valuation of companies. Alongside that, we run a shadow mark-to-model analysis where we compare the public comps traded relative valuation versus the implied valuation of the last round for the companies. And if the mark-to-model -- the shadow mark-to-model validates the latest transaction, we maintain that. Otherwise, which we've done in the past, we calibrate the latest transaction valuation to reflect the change in environment or company performance.And then beyond the 12 months, we are employing a mark-to-model methodology, which comprises essentially like 3 core components that's most suitable to publicly-traded comps, the proprietary VEF financial model and forecasts for the business, and then other factors like FX movements and change in the cash. And I think one more thing just to emphasize is that, while most of our companies are held through, and our positions are held through preference shares, which just enjoy some downside protection, we maintain a conservative approach to valuation and don't factor in potential upside from these protections. So that's just the overview once again and reminding you about the valuation methodology.On Slide 8, you can see the results of that on the portfolio. So for the second quarter of '23, this quarter, 91% of our NAV is -- and that 91% of our NAV represents 11 of the 17 companies, are valued at mark-to-model and only 9% are valued at the latest significant transaction. Our conservative approach to portfolio valuation drove a big write-down, as Dave pointed out, in -- at the end of 2022. And in the same way, it's driven the strong growth that we've seen year-to-date. The biggest driver of the strong growth in the quarter being the change in public comp multiples for the mark-to-model valued companies. And you can see the Top 3 companies there, which now represents 78% of our invested portfolio, driving a big portion of the NAV growth.I think one point just to drill down a little bit more, and I think it's something that's quite acute in this quarter, is that for each of our mark-to-model portfolio companies, we select a unique set of comps that us and our auditors believe are particularly relevant for that business. So some companies have some common components of the concept, but no 2 concepts are identical. And because of that, the median multiples of different groups will move up and down at different rates. For example, in this quarter, Creditas' median comp revenue multiple grew 13%, whereas Konfio saw a much larger 70%-odd change. And this is just a function of our process and that certain public comps performance changed at varying rates in the quarter.On Slide 9, I think this just shows again, I think what Dave described really well, is our NAV is now benefiting from the conservative reset we experienced in 2022, and it's resuming strong growth, which is in line with markets and our portfolio companies' closest comps, reverting towards more normal through-cycle valuations, 91% of the portfolio is valued at mark-to-model and tracking market moves until their next significant events. With new focus on achieving profitability and sustained profitable growth, the portfolio-weighted top line growth will be in the region of 50% in 2023, a rate we consider to be very healthy. And given our valuation approach and proportion of mark-to-model valued companies, this rate of top line growth will be the biggest driver of compounding our NAV per share from here, assuming all else being equal.And we're proud to say that 94% of our portfolio can reach breakeven with current capital position or is already profitable. The remaining 6% of our portfolio have a runway of 14 months. Our companies worked really hard to make the necessary adjustments to ensure a sustainable future in a scenario that tough funding environment persists, and we're pleased with the outcome.On Slide 10, and just to wrap up this section, essentially, this is the NAV bridge that we've started to show the market, but essentially, all of the second quarter NAV growth is attributable to the mark-to-market portion of the portfolio. And within that, $60 million came from the change in comp multiples, $15 million came from the strengthening currencies, predominantly Brazilian reais and Mexican peso. And with the reducing cash position at portfolio companies and some of the dilution offsetting that a little bit.I think the only other things to note on this slide are portfolio performance remains on track, albeit it was muted or neutral in this quarter, as we continue to moderate growth projections as our large companies accelerate their path to profitability. And for the portfolio valued on latest transaction, we saw some dilution at rounds of portfolio companies that we did not participate in. That's that negative $1 million. And on the corporate side, the positive $2 million reflects the weakening SEK and therefore the reduction in size of the SEK bond liability.Yes, and that's it from me on this slide. Dave, back to you.
Super. Thanks, Alexis. Let's move away from valuation, and we do spend a lot of time on valuation because it has been front and center in the markets [Technical Difficulty] valuation, portfolio valuation process. And I think I'd like to think we've given as much as we can, and we'll keep on doing that. But now we need to kind of keep [Technical Difficulty] market focus on what's important and best besides the valuation marks and that levels. And what is important is our portfolio. Are we invested in a quality portfolio of emerging markets and tech assets? And I guess our biased answer to that is, we very much are.And when we look at the top end of the portfolio, Creditas, Juspay, Konfio, Gringo, TransferGo, and the names roll on around the top half, which is the majority of our NAV. We feel in a very good place at this point in the cycle with the assets -- the stakes and the assets that we have [Technical Difficulty] to create value for us and our shareholders over the coming quarters and years.And obviously, that starts but doesn't stop with Creditas. And Creditas is a big part of our NAV [Technical Difficulty] private space, I believe. And their Q1 numbers and the narrative around their Q1 numbers and the evolution of the story is quite clear. It's really in practice for being a public company. And so it's a good practice through the prism of VEF to do that, which is something you bring to the table. But the growth in their portfolio is 36% year-on-year -- [ sorry, it was ] about 30% year-on-year. And what we're seeing on the revenue front, it's about 40% year-on-year, top line revenue for Creditas, this is for Q1 -- [ '22 ] numbers will be out shortly. This has come [Technical Difficulty] in '22, but just logically so, as they run a path towards -- a more moderated growth path towards [Technical Difficulty] right risk/reward in this environment before they arguably will put the foot down again into a better operating environment and in a better capital position environment for Creditas [Technical Difficulty].I think the key underlying metric for Creditas is around their margin, their gross profit margin, which bottomed out at about 10% in the second half of last year and now it's 20%-plus and rising and getting back towards that 40% true market averages. And we say this a lot that Creditas, from a math and Excel point of view, has got itself in a very strong position where you can see accelerated growth coming through at a balance sheet level into next year and beyond in a falling rate environment. Margins are already on the up, irrespective of rates, yet to start coming down [Technical Difficulty] add to those margins and the asset quality cycle is starting to turn in Brazil. And this is all off a much lower CAC and focused business model.So just the company is in a very good position to win as we look forward into a better global and local Brazil macro environment. And I guess that macro environment, not that we're macro investors, is really hanging around inflation levels falling to low single-digit while the interest rate still hangs around those 13.5% level rates globally. And it's a matter of when [Technical Difficulty] more depth and the pace of when these industries start to fall in Brazil to the benefit of risk assets, fintech and within that Creditas is a key or should be a key beneficiary. We've also had Creditas out there a lot recently [Technical Difficulty] investor events. So they're out there front and center [Technical Difficulty].Another name we've mentioned this quarterly call is Konfio. I do so because of the move in the NAV. And just, once again reflecting NAV, it's one of our -- you get different moments in company cycles when companies are on the front foot [Technical Difficulty] across fields and it's very much on the front foot with some good winds in its sails. And very much like Creditas, they're quite akin in that [Technical Difficulty]. So there's an element of a macro story and cycle as well as a structural growth story. Somewhat similar to Creditas, they've gotten [Technical Difficulty] over the last 12 months [Technical Difficulty] working capital is a key product of focus. [Technical Difficulty] got to a very healthy position. And now David Arana spoke on the HSBC event about a path to breakeven this year and comfortable cash position going into next year off the back of a breakeven point. The loan book now [Technical Difficulty] rising, that's only 1% of the current outstanding SME loan book in Mexico, which itself, obviously, is massively underpenetrated and that's just loans and the path to a banking license [Technical Difficulty] account changer [Technical Difficulty] lower cost of funding through cycle and a [Technical Difficulty] about the potential evolution of VEF as it marries with the working capital side of things.So [Technical Difficulty], not as much information provided because it's a bit smaller, not yet there in terms of the path towards IPO and showing data but starting to get there. But this is more on the -- very much on the front, similar to Creditas.Touching on corporate governance, as we like to do every quarter, I guess this quarter, focus is very much on the strengthening of our Board. We always think about our business on the capital side, our investors who we love, on the asset side, which is our portfolio of companies, which is to invest well. But in between, you need to continue to build a business for the long term. And that's just putting in place the structures, the people, the processes, to help you succeed over time. And when we looked at our Board, there probably was a gap, an operational gap, and in our Board, we've got some great bankers, through-cycle bankers, investors, PE, VC, but we didn't have actually a fintech operator on our Board. And obviously, we're investing in fintech companies.So Katharina Lueth joined the Board, very happy to have her in Q2 at the recent AGM. She's ex-McKinsey, so she is a financial [Technical Difficulty], classic financials, but also fintech. And she took the step into being an operator as part of the team at Raisin, which is deposit gathering machine now in Europe and globally. And [Technical Difficulty] in financials, in fintech, in emerging markets, but now more importantly for us, in the operational side. So she's got her feet wet basically in this space and knows what it's like to be in a fintech day-to-day, brings that to the Board and the Board level discussions and we're very happy to have her.On the share price, Investor Relations front, obviously, with the move in NAV today, with the share price aside, we're trading above 50% discount to NAV. I would say, something that keeps us focused, [Technical Difficulty] this can be short or long. And we've seen it in the past, albeit not to this depth, discount to NAV. So it's something we're very focused on day on day, week on week. We want to address this. And I guess the mantra within VEF, it's -- right now, it's increase the NAV per share and reduce the discount. And we just keep on saying that and keep on trying to do it as much as what's in our power.And I guess what is in our power, this is a repeat of previous quarterly slide, but the Investor Relations and the PR front, we keep on trying new things to broaden and deepen the shareholder base and get our story out there, publishing our own research, Solfacil is the most recent one. At the Brazil Investor Day, we had in Sweden with FinanZero [Technical Difficulty] and Creditas, both in town, the founders [Technical Difficulty], the Swedish investor base, which is a big part of our investor base. And we've hired a dedicated PR firm [Technical Difficulty] there mainly Swedish retail, and which is the big daily trader of our stock.The transparency will keep on increasing, both at VEF level and company level as we can but it's in the valuation approach, which we double-clicked on earlier, but also certain aspects of the [Technical Difficulty] number broadly, expected growth of the portfolio. And then I think the performance itself for NAV, people start to extrapolate as the confidence builds and that comes through and one needs to be patient around that. And that's all within the prism of looking at [Technical Difficulty] portfolio today, [Technical Difficulty] that can invest in future winners, and we're trying to get very excited about that, too.From a capital [Technical Difficulty] comfort with controllables. Balance sheet management is a key focus for us today. We're sitting on $45 million of cash at a comfort position, but it's not a war chest. It's not a war chest either for, A, investing in the next [Technical Difficulty] or B, managing our debt profile as we roll forward to 2025. [Technical Difficulty] we have time. We've got comfort but we're very focused on, as of today. We should be at about $32 million at year-end '23. Our bond outstanding SEK 500 million. Obviously, we benefited from [Technical Difficulty] like we've alluded to. And that's about a $46 million outstanding liability balance against the $45 million of cash that we have today.And I guess, solutions around this are classic for an investment company like ours, exits are front and center as markets start to recover for some of our bigger, better assets as they move towards M&A and IPO. But also you have the option of rolling that debt or just restructuring that debt in some shape or on the equity side [Technical Difficulty] as your share price increases and that's closer to NAV. And we have a plenty of optionality around that and plenty of time, but something that we're very focused on.And then finally, just to wrap up, I think it is worth -- I said it's a lot, but we reiterated that 2022, because it was a tough year, [Technical Difficulty] in the life of an investment company like ours, but we stood up to strengthen our balance sheet with the bonds. We put our arms around our biggest companies and made sure they were strong and they are in a very strong position today. [Technical Difficulty] convert the growth in terms of strategy, those moderated growth path towards breakeven, especially around Creditas and Konfio. And we marked our portfolio to market quick, front and center, in Q2 of last year[Technical Difficulty] screaming bull market, but we are feeling tailwinds. And a lot of tailwinds comes because of the hard work [Technical Difficulty], but also because of the quality and the range of our portfolio, which is effectively the value in our company, if you own a share. And that's Creditas and Konfio, refocused, getting fit, well capitalized and set for the next point of this cyclical growth story, albeit at a low structural growth there, too.Juspay, the classic structural growth story, we're benefiting from that, and that will remain a key engine of growth. And then there's a lot of names coming through, and that will evolve over time. But I think TransferGo is one of the standout this quarter as they reach breakeven, growing at a healthy clip in a very strong space. And that's that team and the space that they're in that's trying to impress us more and more. And you're seeing it with names like Remitly and Wise starting to really perform in the public markets and TransferGo is very much akin to them, albeit in a different geographic space.The NAV tailwinds are in play. And I guess if there's one takeaway from this quarter, it's NAV tailwinds and a 25% growth year-to-date and then -- and how we value that capital. As I said, we sit on $45 million, so we're comfortable at this point. And just to reiterate, those strategic priorities today -- and we've got a lot of [Technical Difficulty] is strengthening our balance sheet and managing or dealing with that traded discount. So that's where we spend a lot of our mental energy and otherwise.I will stop there. And operator, if I can hand back to you and you can open up for questions at this stage, please.
[Operator Instructions] We are now going to proceed with our first question and the question has come from the line of Joachim Gunell from DNB Markets.
A couple of questions from my side. Starting off with -- I mean, it's just a marginal revision to the overall portfolio group [ rev ] for 2023. Perhaps you can just comment a bit about -- on a more broader perspective, which holdings are clearly ahead of your expectations and perhaps also which have fallen slightly short thus far into 2023.
Good. Look, I think it's a NAV-weighted revenue forecast. So the bigger names will have a bigger impact on that. Within that, from what we've done forecast-wise year-to-date, and correct me if I'm wrong, Alexis, but it's been pulled back on Creditas. So you're moderating those growth levels to get to breakeven this year with the benefit coming into next year and the year after. So the 12-month rolling, moderate pullback [ on Creditas ], Konfio going the other way and Juspay, more or less, steady state, i.e., which is about 78% of the portfolio. So that's where you see your plus/minus and neutral weighting. Below that, I'd say, standouts, impressive names that have -- we've been upping our forecast. I pushed on TransferGo is one that's had a great 12 months both on volumes and margins. And we've [ booked ] that and that's probably the standout below the big 3.
Great. And when it comes to FinanZero's latest funding round, can you say anything about the cap table there, whether there were any new external investors also, call it, validating the valuation, which was in line with the previous round?
Yes, and it's a fair question. We put the story, FinanZero raising the capital because it was the only company that raised capital in the quarter, so obviously, as an event. And obviously, it was at the last funding round valuation, so it's a welcome event. Generally speaking, I'd say any capital is welcome capital into any of our companies. And specifically, was this high-end VC coming in globally? No, it was -- the money that came in from this round was from the Swedish ecosystem, a mix of current investors and new investors and a mix of high-end retail and VC funds within Sweden. [Technical Difficulty].
Understood. And I think this was -- I mean, this is, of course, a priority, but you really accentuate that the top strategic priority here is to strengthen the balance sheet over the coming 1, 2 years. Can you just talk a bit about how you envision this to play out based on, obviously, your bonds maturing in Q2 '25? I mean, with the current discount, I mean, would it make sense to even call it buy back the bonds, et cetera.?
Yes, look, so lots of strategic thoughts at the moment, Joachim, and it's a fair question. It's one of the things where we have -- we're working very hard on a lot of fronts. I guess over time, we're working very hard to make sure we built a platform that can invest in winning EM fintech companies for the long term. And I think we very successfully built that. We've got a track record in place to justify that. Then you're obviously live with that for a period of 7 or 8 years. So you have an existing portfolio that you've got the ebbs and flows of markets with, as we've had for the last 18 months to 2 years on the way down and the way back up. And there's a lot of work there into, if anybody buys a share and invest, the value creation within what you see irrespective of the platform that actually built that over time.Then you're looking at your balance sheet on the liability side and what you want is a capital to put into that machine to support your current companies, but also find next gen winners. And that traditionally has obviously been an equity play for us. And I think over time, it will continue to be an equity play for us unless the asset side of our portfolio becomes listed, which is possible, or starts to generate dividends, which is possible because more and more of these companies are maturing and profitable. And some are moving towards IPO.You get yourself to a position like we are today. And I guess the priority over the last 18 months has been on the asset side and getting ourselves to a comfortable position and a lot stronger position in the asset side and a comfortable position on the liability side. And how do we get from here then to a strong position on the liability side to marry that with the asset side? I think it's continued performance on the asset side and NAV, because that gives everybody comfort on the capital provision side, both equity and debt as they look at us. And I think, when I look at our bonds outstanding, I see a very manageable amount, albeit we're far from comfortable. We stay very focused on that. I see our cash position and you're correct, you could see us buying back our bonds in the market, I'd say, from a prioritization point of view. And this is more strategically than IRRs, buying back our bonds sits ahead of buying back our equity and probably day to day investing at this point in the cycle.And then we're very close to our equity investors and our bond investors and the markets in general, looking to work with them for the best balanced risk/reward solution for them as through-cycle investors, but also us as an investment company. So it's something -- we will start to make some moves on this front. I think up until now, [Technical Difficulty]. It's our ambition to make those moves, but [Technical Difficulty] especially on the debt front, whether it's nibbling at our bonds and buying some back, whether it's rolling them in some interesting way with some of our partners or seeing exits from our companies that will pay down that debt. And one would like to think there's some kind of linkage from that to our discount to NAV and that will obviously gap up as that starts to wind down on the debt side, but we'll see.
Great. Just finally, also perhaps -- I mean, with some sort of, call it, green shoots here, both when it comes to obviously how your NAV has performed here today, but also, call it, a more comfortable cash position, et cetera., can you say anything about what learnings you draw here from this, call it, VC reset as opposed to previous cycles? Market volatility is nothing new for you, of course, but are there any particular learnings from this cycle?
I think from -- I think everybody makes similar or different mistakes over and over again in these cycles. But what I like in our portfolio is there's some structural growth stories and Gringo and Juspay sit into that. Right now it's like 100% structural, just up and to the right. And you can debate what that percentage growth is. You've got companies that break out in your portfolio like Creditas and you go, great, it's broken out, it's gone from, $100 million company to a multi-billion dollar loan book in the making and proper top line revenues of $400 million plus. But once you get to a certain size, you start to bring in the cyclical aspects. So structural growth gets you so far, but you get big enough and you start to take the structural -- the cyclical [Technical Difficulty].We've had that in Creditas. It's almost like you looking in a listed company, us having Creditas in our portfolio. And in the downsize, we take down the valuation and you get fit for the next upcycle, albeit there's a lot of structural growth there. [Technical Difficulty] this is on the nature of a listed investment company. I think we're all being put in the same box at the moment, which is the glass half empty box, irrespective of your micro level performance. And I'd like to hope the market starts to differentiate going forward from people with better asset sides or better performance or stronger liability sides and through-cycle performance. But that's [Technical Difficulty] shares count to NAV. But I guess that's a fresh learning of living as an investment company in a window like this and how the market treats you. [Technical Difficulty] and that comes in time.
We are now going to proceed with our next question and the questions come from the line of Ermin Keric from Carnegie.
Maybe the first one would be the slide you show with 94% of your portfolio now being funded up until breakeven is expected. I think that's up from like 70% in Q1. Is that primarily Konfio that's been added there or is there anything else that we should be aware of that's kind of dropped in there?
Alexis, do you want to grab that?
Yes, sure. Yes, I would say, for sure it's Konfio. So at one point, Konfio was pursuing a more aggressive strategy and they're looking at potentially making an acquisition. And I think once they decided to pursue the organic path for a banking license and move towards profitability, I think that was a big contributor to that 94% number. I think the other one is Solfacil as well, who decided to make some changes to the business and pursue a more sustainable growth path from the point of profitability. So they are in the process of adjusting the business and working towards that. I think those are the 2 large ones.
Got it. Then just on kind of different peer groups you have for your holdings, how many peers do you have minimally in kind of peer sets? I'm just thinking with Konfio, I think you said multiples moved by some 70% roughly.
Yes. Dave, shall I take that as well?
Yes.
Yes, I think specifically for the large ones, so like a Konfio today has 4 peers in its concert and then Creditas has 5. There's been a debate with us and the auditors about like size of the concert, big versus small. And I think we've always tried to focus on very, very relevant peers, but not to have less than 2 or less peers in a concert. So I'd say the bulk are sitting in kind of the 4 to 5 category.
Perfect. And then just a final question on Creditas. As you also showed in the presentation, it seems like a SELIC rate cut is basically imminent in Brazil. Is that part of your assumption when you're valuing Creditas at this point?
No. So I guess, neither ourselves and Creditas and -- we're different models, we generally have a more conservative model than them, but neither of us put in place a SELIC rate cut this year. And especially that was just to keep the company honest and keep our forecasts honest around getting to a point of breakeven off the back of current macro steady state. I think consensus is for -- I don't know, it's 100, 150 basis points by year-end and are starting in Q3 at some point. And then it's a debate around how quickly and how far we go over what period of time. But no, that's not embedded in the forecast, specifically this year and only very gradually into next year.
We are now going to proceed with our next question and the questions come from the line of Priya Rathod from KBW.
A couple for me. So the first is on Konfio. So obviously, they've had a great performance this quarter. What is your outlook going forward? Is this potentially like a candidate to IPO after Creditas? And also, obviously, you mentioned that Konfio acquiring a banking license. Is there a timeline that they're working to on this? And is the idea to attract deposits as a funding source? Or is this just to start branching out into new products? And my second question is, obviously, you're seeing encouraging signs of fresh and positive investment vintage coming up, which I agree with. Which geographies or business models are you seeing like have the most opportunity, say, in the next 12 months?
Super. Thanks, Priya. Appreciate it. Look, let me handle the first one on Konfio and then Alexis, you can maybe jump in on the second one if you want. But like on Konfio, it's had a great performance this quarter in terms of valuation. And that's obviously been a lot to do with the market comps and FX and its own individual performance as part of that. And a lot of this is just recovery from what was a very aggressive pullback in our valuation of Konfio over the last 12 months in line with comps. But the company itself is in a very good position. It's got some nice tailwinds, as I mentioned in the presentation. And a lot of that is just really down to focus; focus on the working capital, business model, which is a key part of what they do on the asset side. They obviously do cards, they do payments as well, and a small ERP business embedded.So you're starting to see nice tailwinds of what they're doing, a nice focused cost base feeding through, which gives them that comfortable ability to get to breakeven at more moderated growth pace. This, once again, we're talking in the 30% plus/minus balance sheet growth this year, as opposed to the triple-digit before, as they grab that breakeven point and control of their own destiny, which is what you want from all your companies at this point in the cycle.If you look at Konfio, going forward, this is a company that could either IPO or M&A. Obviously M&A can happen at any point in the cycle if the right bidder comes along with the right price and everybody's on board to sell the business. But that doesn't feel like where we're at with Konfio right now because there's a lot more to go in this company, a lot more value to be created. But I think Mexico needs more better listed digital new-economy companies and Konfio would definitely fit that down the line, but not yet. I still think we're early on that front.And then you touched on deposits [Technical Difficulty] banking license. And you've seen a lot of fintechs going from not wanting banking licenses to banking license becoming paramount to what they are as they realize that fintech and financial services are one and the same thing. And that's very key. And especially if I see the value potential in something like Konfio as a savings and loans, a digital savings and loans for SMEs in Mexico, it just -- it multiples the value of Konfio, the digital lender for SMEs. So the focus has been on that for a long time, been in process for M&A to buy a bank, which fell through for multiple reasons. And I'm actually quite happy it did, at this stage. And now they're in a process for applying for a banking license direct with the regulator. Process is going very well.And yes, Priya, the plan is to gather deposits. So they will be an on-balance sheet lender and an on-balance sheet funder. And those deposits could come from a myriad of sources. They can either be sourcing those funds from their SME clients who they give loans to on the asset side, or with that license, you can obviously tap in a multitude of private clients, retail deposits, something that can bring down your cost of funding and a stickier, what is the, let's call it, double digits rate that you're paying for international funds to fund your [Technical Difficulty] deposits in Mexico anywhere between 5% and 9%, I think the average run rate. The better banks -- the bigger banks are clearly in the 2% to 5% category. But Konfio doesn't need to go there to be successful deposit gatherer or have a big impact [ on the tune of ] economics.So that's on Konfio. Alexis, do you want to talk about the investment environment?
Yes, thanks for the question, Priya. I guess on opportunities for new investments and the environment for new investments, in terms of geography, I would say we continue to focus on what we feel are core countries that we know and understand really well, that we've got deep into, that we've spent time understanding like the local market, the dynamics of the incumbents, the local culture around financial services. And those markets are Brazil, India, Mexico, and Indonesia, where we have yet to make an investment, but have invested quite a bit of time and spent some time on the ground as well. So I'd say those are like the 4 core geographies. Now each of those geographies are warming up with opportunities at different paces. I'd say, like, India is probably the geography where there's such vast dedicated capital to the opportunity that the investing environment has warmed up quickest, followed by probably Brazil and then Mexico and Indonesia. So yes, that probably describes kind of the geographic lay of the land in terms of how we think about making new investments.In terms of -- I know you asked about which ideas and models, like, appeal to us. I think it's still very different, country to country, and we really like localized solutions for local financial service problems. I would say, generally, themes that we are seeing that we really like is the embedded finance theme, where we've made most of our recent new investments, whether it's Gringo and financial services for drivers and cars or Solfacil around solar panels. We're really liking the embedded finance opportunity, and we're seeing more and more opportunities in that space. Hope that answers the question.
We have no further questions at this time. I will now hand back the call to David Nangle for closing remarks.
Super. Thanks, operator. Look, thank you, everybody, for taking the time again to be with us this quarter and listen to our presentation and pretty interesting questions. Thanks, as always, for following the story and being shareholders and supporting us in our journey. I think what you're seeing here today is a company and a team feeling in a good place. We're not getting carried away by what we've seen year-to-date in 2023. We like to think it's only the beginning. I do use the word recovery, but tentatively, you've got to be careful in these markets. There's a lot of moving parts, but off the back of a lot of hard work in 2022 and hard decisions within that, we are benefiting in '23. And obviously, off the back of a long duration of investing well in quality fintech companies, we're benefiting from those on the asset side, which will drive our [Technical Difficulty] price going forward. And I've said before, the key mantra at VEF is NAV per share, increasing it and decreasing that discount. And the priorities right now are around balance sheet and that traded discounts.But thank you again. Enjoy your summer. And I'm sure we'll be talking to you soon.
This concludes today's conference call. Thank you for participating. You may now disconnect your lines. Thank you.