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Ernst Haft's avatar

Hey Bryce, thanks for your really good research.

I have a question about Nanobank.

Could it be that Zhou Yahui is using nanobank to launder money on a larger scale?

According to the article, it is not the first time that the provider of the Indian credit app "Cashbean" has been suspected of this. In addition, around $ 55 million of the company has currently been frozen and is being investigated in this regard.

Thoughts on this?

https://timesofindia.indiatimes.com/city/hyderabad/ed-seizes-rs-131-cr-from-chinese-loan-app-co-for-violating-fema/articleshow/86663139.cms

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Bryce Nortje's avatar

Your comment from 10/23/21 proves my point that you also knew about Opera-Nanobank saga as of Oct 23. So the recent drop of Opera stock price has nothing to do with Nanobank, everyone knew about this outcome.

Opera management has just announced buyback in Jan'22. Image you are opera management and if you have a choice of higher stock price or lower stock price, what will you choose and what will you do if you want to go with your choice. You are smart so you also know what I know but I also know what you know, so let's leave it there unless you are hell bent on making this "nobody" eat crow( I have already eaten couple of times and it does not taste good).

And, pls next time, use a different id so that I can not connect your comment together.

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Ernst Haft's avatar

Looks like my fears came true.

The question is which other numbers that Opera publishes are credible.

Q4 Earnings were weak.

Buyback has not even started and the cash has already reduced from 193 million to 181 million.

Apparently the stock price is not low enough for the Management.

Absolute shit show today. Shares goes below $5.

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Bryce Nortje's avatar

1) Cash reduced by 12.1M. True. But have you looked at Current lease liabilities and other loans. It also reduced from $27.1 to $11.4. Does it make sense now.

2) Q4 earning exceeded the guide although they have always beaten the low ball guidance but won't call it weak.

3) Management/CEO bought 1.1 M ADS at around $8.5 price which I think Yahui considered a steal. What else management can do to justify.

4) If stock goes to $5, It would be great for existing holders as Opera can buy more under $50m buyback.

Not sure what you angle is with OPRA, but was expecting questions like this on twitter but hey substack will work as well :)

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Ernst Haft's avatar

Wow, $5 came quicker than I expected.

Seems also that Nanobank has spoken guilty of money laundering in India and lost its banking license there.

https://inc42.com/buzz/rbi-cancels-registration-of-chinese-owned-lending-app-cashbean/

Nanocred.sg, the former Nanobank homepage, also seems to have been closed. Instead, you will now be redirected to the nanopay.mx website.

Seems like something went wrong in the background and maybe there are more problems.

Opera is now at an all time low. Additionally at a three year chart technical resistance.

If the sell-off in global indices continues over the next few weeks, this stock could take a hard hit.

Possibly even to the $2 that Hindenburg Research predicted in its short report.

Management doesn't seem to care that at all. I would think they buy what they could at these prices, but the volume has been relatively thin for the past few days

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Bryce Nortje's avatar

Good call Ernst. Looks like you have direct connection with Putin :) What is your crystal ball telling you on what happens next. btw, Nanobank news is a stale news, everyone knew about this outcome since Oct'21.

Nanobank can still look out for minority owned JV in India and can build the business back. They learned it hard way that like many other countries especially western and south asian, you can not be majority Chinese in a direct user facing business, unless you are selling some obscure chip/component which no body cares about.

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Ernst Haft's avatar

I have no connections to Putin, but I do have logical expertise. Sometimes it's worth more.

My "crystal ball" tells me that we may be short before of a global economy downturn. In such phases, small caps (like Opera) usually suffer more than blue chips. IF the sell-off continues in the coming weeks, there is an increased chance that Opera will be negatively affected above average. Especially since much of their business model is aimed at Africa, where the economy is likely to be hit particularly harder with rising energy and food prices. There are also possible problems with Yandex, which is a major customer of Opera.

I think you either didn't read the article or didn't read it completely. Yes, you could have known as early as October 2021 that Opera faces money laundering charges in India. According to the article, the final verdict, including a prohibition of business, was not imposed until February 24, 2022. I think some people thought/hoped that there could be a lighter sentence here. Especially after management said in the Investors Call on February 17th that they have a long-term interest in the Indian market and that they have already submitted documents to the Indian authorities to prove Nanobanks innocent. Unfortunately, this does not speak for the professionalism of the management

I'm also not sure if there will be an opportunity to set up a joint venture in India. The regulations in the microcredit market have already become stricter in recent years and will probably continue to do so. If no quick solution can be found here, I think it would make more sense to sell the Nanobank minority stake. The business model is very risky as you can see at the moment. This is bad for the predictability of revenue, which in turn is bad for the share price. The market simply hates uncertainty. In addition, the money could be used to start new projects that will accelerate the weakening growth at Opera (2021: over 50%, 2022: 22%). If necessary, the money could be used to buy back more shares.

The argument that Opera management is waiting for better entry-level of stock price is also nonsense in my opinion. Since they can never say with certainty when the bottom will be reached, they would not buy at all by this logic. If they want to try bottom-fishing, they should become traders, not managers in a publicly traded company. Here I would expect to look more at fundamental metrics (which Opera is very cheap indeed).

I think there is a misunderstanding here. I never referred to you as "nobody". On the contrary. Obviously, I really appreciate your detailed analysis. However, I would be happy if you didn't just focus on the positive aspects at Opera, but also critically examined the negative aspects. So neutral readers can form their own opinion of the company.

PS: I will definitely not change my ID. Ernst Haft is just a too cool play on words in my country.

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Bryce Nortje's avatar

I like a good conversation. You seems to know Opera very well, so thanks for sharing your views. If you think I only focus on positive aspect, I can say the same about you that you only focus on negatives. See my responses to your comment right after Q4'21 earnings.

I have been critical of company as well. Read here - https://brycebd1.substack.com/p/opra-stock-2021-recap-and-what-to

MAU numbers will go down. It is better to have 100M users with more favorable western mix than 350M. I never anyway believed that 350M MAU number since MAU is meaningless to me. If you use Opera only once in a month for 1 sec, it inflates numbers but has no value. What matters is revenue and usage which has been on rise. However, the ARPU will go up as MAU go down, so this metric will look good as some analyst care about ARPU.

I don't think everything will go right for Opera. They will have failures like Olist in FY'20 and Dify in FY'21. But despite these, Opera is still very undervalued -- That has been my thesis all along.

Opay and starmaker are both doing great. If you look beyond India for Nanobank, Nanobank is doing very well in LatAm.

Hopefully Nanobank/Opera management realize that in today geopolitical climate, you do not want to be majority Chinese or Russian.With Softbank as Opay investor, they are already fixing things at OPay with strong local leaderships. I hope this happens for Opera soon. At some point, Yahui has to dilute his stake below 50% and bring in more accredited investors. They can also announce a Western CEO for Opera which I think will be in cards at some point this year, with Song Lin going back to his previous COO role.

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Ernst Haft's avatar

Wow, the Nanobank sale came quicker than I expected. Seems my ,,crystal ball” is better than I thought 😉

But joking aside.

Bryce, how do you view the sale of Nanobank? Apart from the fact that the sale is made in quarterly installments (which I personally consider negative), what do you think of the sale price? The 127 mio that Opera receives for the 42% stake in Nanobank imply a total value of 300 mio for Nanobank.

In one of your last articles you estimated the value of the stake in Nanobank at 266 mio. The selling price is also a discount of over 50% to your estimate. Do you think that stems from the problem in India or did Zhou Yahui practice nepotism here like he did with Opay?

Or do you think your estimates are generally a too positive picture of reality?

In addition, I have one more question about the current situation with Yandex. Part of the revenue is expected to collapse in 2022 due to the current situation in Russia and Ukraine. Approximately how much do you estimate this loss to be? Do you continue to expect yearly revenue of 340-350 million in 2022 and 420-430 million in 2023 as in your previous articles? If not, what are your current estimates for revenue and free cash flow for the next two years?

Thank you and good trades.

Your friend Ernst

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fredrick fredrake's avatar

Thank you for this, I just want to know, you didn’t rebut the alleged 9.5million that the chairman is using to fund business already funded by opera.

Thank you

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Bryce Nortje's avatar

I think you are referring to the $9.5m Opera paid to buy Tenspot Pesa from Opay. Tenspot has license to operate micro lending business in Kenya. Okash was originally set up as part of Opay but I think Opera and Opay realized soon that Opay does not have cash to fund the micro lending business in Kenya and Nigeria and Opera bought it from Opay for $9.5M. This Okash business along with Tenspot later became part of nanobank.

Similar thing happened in Nigeria as well. Opera bought the blue ridge micro finance from Opay for $10m since blue ridge owned the license to provide micro loan services in Nigeria. Later, when Opera merged its micro lending business with mobi magic, Opera sold it back to Opay for $5M ( in the middle of covid, when the revenue from Okash dried up) in exchange for Opay warrants. Hopefully, with recent funding round, these warrants are worth lot more than $10M now.

So now, Opay hold the Okash brand license to operate micro lending business in Nigeria while Nanobank owns the Okash brand license to operate micro lending business in Kenya.

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fredrick fredrake's avatar

Also I thought opera owns opay, why are they still acquiring opay’s businesses.

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Bryce Nortje's avatar

Opera never owned Opay 100%. They started with 19.9% stake which further got diluted to 13.1% with $50M and $120M series A and B round. Most recently, it further got diluted to ~8% when $400M series C and partial monetization of its stake by Opera.

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fredrick fredrake's avatar

Oh okay. Thanks for clarifying.

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fredrick fredrake's avatar

So opera bought blue ridge for 10m$ and sold it back to opay for 5m$

Why would they sell at a discount?

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Bryce Nortje's avatar

I can only speculate here. May be business conditions were not good in the middle of pandemic when this transaction of sale back to Opay happened. Good thing is that Opera can redeem this $5M in shares.

Here is relevant section from 20-F explaining this. Hopefully, settling in shares would more than pay for the $5M loss Opera took on blue ridge.

"On March 3, 2020, the Group entered into an agreement with OPay Digital Services Limited, a subsidiary of OPay Limited, for the sale of 100% of the shares in Neofin Malelane (PTY) Ltd., a subsidiary of the Group, in exchange for US$0.1 million. Moreover, on March 17, 2020, the Group entered into an agreement with the same entity in the OPay group for the sale of 100% of the shares in the Group's subsidiary Blue Ridge Microfinance Bank Ltd. in exchange for a consideration of US$5.0 million. While the Group has an unconditional right to payment in cash, the Group expects to settle the receivable by converting it to equity in OPay Limited in a future funding round. The loss of control over Neofin Malelane (PTY) Ltd and Blue Ridge Microfinance Bank resulted in the Group recognizing a gain of US$5.3 million in the Statement of Operations for 2020."

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fredrick fredrake's avatar

I understand now,

Can I get a link to the 20-F

Thanks

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Bryce Nortje's avatar

u can get it from Opera investor relation website.

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