A technology portfolio with scale & quality

Now that our FY19 results have been released, we have an opportunity to consider the performance of the whole BTI portfolio and why we are excited about the new financial year that is now upon us.

FY19 was a year of strong performance of our underlying portfolio as highlighted by the following key metrics:

These are excellent numbers and above all speak to the quality of the BTI portfolio. These statistics are in the realm of the premium technology names listed on the ASX, and investors can get access through BTI at a much less demanding valuation.

As a whole, the portfolio has:

• Organic growth higher than WiseTech;
• Recurring revenue higher than Altium; and
• International revenue proportion higher than Xero.

The very high and increasing percentage of recurring revenue is a result of our decision to focus on software-as-a-service business models which are characterised by subscription-based revenue and a demonstrated ability to add on other revenue streams in areas such as transactions and payments. In addition, Lendi generates recurring revenue from trailing commissions and Straker Translations, another marketplace business, has repeating revenue of over 75%.

The high gross margin of the portfolio indicates the quality of the revenue produced, allowing strong profitability improvement as the businesses scale.

A high percentage of international revenue indicates that the businesses are not just ‘local champions’, they are competing and winning on a global stage. It is a particularly important indicator that the businesses have very large addressable markets. This means that they can grow to be very large companies themselves, can do so at attractive growth rates, and can ultimately be realised at valuations which reflect these characteristics.

More than 98% of portfolio revenue over the last two years has been organic. The small amount of non-organic revenue growth was a result of successful acquisitions by Straker Translations. The strong organic growth shows that our portfolio companies have established strong market positions. They are either growing into new markets created by the new digital products they have developed or are disrupting and replacing the outmoded products of traditional competitors.

Very high organic revenue growth combined with recurring revenue models gives us confidence in the future performance of the portfolio.

Excited about the new financial year

The new financial year is upon us. We are pleased with having generated an 18.2% return in FY19 after all fees driven by upward revaluations to seven of 10 portfolio companies over the last financial year.

We believe there is further upside potential given the conservative valuation approach. In our next NTA Statement to be released to the ASX by 14 September 2019, Instaclustr, our successful open-source platform-as-a-service investment, is due for valuation review.

We have now entered a phase of focus on realisations. We are off to a good start in FY20 after BTI sold $1.95m of its holding in Straker Translations Limited (Straker, ASX:STG) at $1.95 per share on 31 July 2019. The sale price represents a 29.1% uplift to Straker’s IPO price in October 2018 and an effective 25.1% internal rate of return (IRR) on BTI’s investment. We remain large shareholders of Straker and big believers in its future prospects.

We look forward to sharing many more insights and successes with you this year.

David Kirk & Paul Wilson, Bailador Co-Founders