Tony Fabrizi, Chief Executive of Blue Star Capital plc (BLU.L) Podcast

Today Blue Star Capital updated with the Half-yearly Results for the six months ended 31 March 2020 and we had the pleasure to speak with the CEO, Tony Fabrizi


 

 
Chairman’s Statement

I am pleased to report Blue Star’s half-yearly results for the period ended 31 March 2020.

Financials

Blue Star reported a loss for the period of £189,460 compared with a loss of £494,543 for the six months ended 31 March 2019. The results for the period ending 31 March 2019 included a substantial loss relating to non-cash adjustments to the carrying value of investments. The ongoing running costs of the business have been maintained at a similar level to last year.

Net assets increased to £5,969,917 compared to £5,209,377 at the Company’s last financial year end of 30 September 2019 and reflected the fund raise of £900,00 (before expenses) undertaken in November 2019. This equates to a net asset value per share of approximately 0.19 pence.

Blue Star’s cash position at 31 March 2020 was £7,379 compared to a balance of £120,828 at 30 September 2019. The Company’s working capital position is dependent on new funds being made available to it and post the period end the Company successfully raised £500,000 before expenses on 9 June 2020.

Portfolio Review

I would like to provide the following information on our portfolio companies, inclusive of updates for the six-month period ended 31 March 2020 and any subsequent developments of note.

SatoshiPay

Company Description

SatoshiPay provides an innovative two-way digital payments platform with applications across a number of segments within the global payment industry. The SatoshiPay platform is powered by the Stellar network, which is a leading global blockchain network and payment technology. SatoshiPay is targeting three segments within the global payments industry, each of which represents a substantial market opportunity:

The SatoshiPay platform has unique advantages in each of the three markets:

· Micro-payments represent a growing market segment. These are transactions that can be as low as a few cents and are often uneconomical using conventional payment technologies. Applications include online publishing (pay per view), gaming and consumer reward programmes. The SatoshiPay platform offers instant end-to-end payments at a level of commission that makes payments viable for merchants and customers. SatoshiPay has commercial partnerships in place with online publishers such as Axel Springer and Börsenmedien.

· Digital wallets are a mechanism allowing consumers to make payments using their mobile or desktop device. The Solar wallet from SatoshiPay, powered by the Stellar Network, has more than 25k instalments in 40 countries. It is recommended by the Stellar Development Foundation, which coordinates the Stellar network.

· B2B cross-border payments are the most recent market for SatoshiPay. In November 2019, the company announced the new SatoshiPay B2B service, using the same technical platform as the existing products. This is the largest segment in the global payments market and represents an exciting growth opportunity for SatoshiPay.

Recent developments at SatoshiPay

On 28 May 2020, the Stellar Development Foundation (“SDF”) announced that it had made a strategic investment of $550,000 by way of convertible loan notes into SatoshiPay. This investment will be used to support the development of SatoshiPay’s B2B solution for commercial, cross-border payments and its digital wallets. SatoshiPay was one of the first businesses to use Stellar commercially and has, to date, processed EUR650,000 in payments from over 200,000 accounts.

SDF is a key partner of SatoshiPay providing maintenance and partner support for the Stellar decentralised ledger network. This investment will enhance the already strong relationship that exists between the two organisations. The convertible loan notes are expected to convert at the time of SatoshiPay’s next round of funding.

SatoshiPay is currently testing its B2B payments solution and expects to have a public beta product launch live sometime in the fourth quarter of 2020. SatoshiPay advises that the reaction to the product continues to be very positive with a number of potential clients already signed for when the product goes live.

Blue Star’s holding in SatoshiPay

The Company’s shareholding in SatoshiPay was acquired for £1,876,788 and represents 27.9 per cent, of SatoshiPay as at 30 March 2020. This investment has a carrying value of £4,745,787.

Esports portfolio

The global esports market is a rapidly growing economy. More than 200 million viewers regularly stream competitive gaming tournaments and related content, with a broader fan-base of up to 900 million occasional viewers. In terms of revenues, the industry exceeded US$1bn for the first time in 2019 and is forecast to reach over US$1.8bn in 2021.

The growing professionalisation of the esport industry has been attracting increasing investment capital into the space and Blue Star has made investments in a portfolio of early-stage businesses with potential to enter the top tier. In October 2019 Blue Star announced a £900k investment in the esports market, comprising six e-sport companies, each valued around £150k. I will discuss each of these companies below.

Dynasty Esports PTE is a Singapore-based business addressing the Malaysian market. Malaysia is already a rapidly growing market for e-sport, and we believe that this will be accelerated by a programme of government investment that is already underway, aimed at making Malaysia a regional hub in the e-sport industry. In this regard, we are delighted at the recent announcement from Dynasty that it has signed a five year exclusive partnership agreement with Malaysia eSports Federation (“MESF”,) via its Kuala Lumpur based subsidiary Dynasty eSports (M) Sdn Bhd, to provide its esports Portal Management (“EPM”) platform to enable effective management and control of the esports ecosystem within Malaysia.

Dynasty’s EPM platform will be fully white-labelled, customised and branded for MESF and will bring together the main elements of the esports ecosystem being the players, the organisations and the tournaments, under one single integrated digital platform with the intention of providing a shared national and global view of the esports industry.

Under the Terms of the partnership agreement, MESF will actively endorse, promote and drive all esports related traffic in Malaysia to the EPM platform. MESF will also regulate and ensure that all domestic esports events, leagues or tournaments in Malaysia will be exclusively hosted on the MESF platform as the single destination site for esports. Tournaments and leagues attempting to operate outside of the MESF Platform will not be licensed or authorised by MESF which is expected to have the effect of any such event being blocked.

Dynasty will generate income throughout the term of the partnership via a matrix of revenue streams Including management fees, advertising, sponsorship, exclusive eSports broadcast rights (both nationally and internationally), and other revenue share arrangements with MESF.

Blue Star’s shareholding in Dynasty is 13.7%.

Guild Esports plc (“Guild”) is a London-based esports team operator. On 25 June 2020, Guild announced its global launch and association with David Beckham, an investor in Guild. Guild is developing a talent pipeline in the UK, based on the traditional academy model, with the intention that the most able players are coached and nurtured by industry leaders in order to attain the skillset required to compete professionally. A roster of scouts will continually find and sign the best young talent.

Guild has established a management team of esports veterans with experience as professional players, coaches and esports media. Guild Executive Chairman, Carleton Curtis, is well-known in the industry and architect of the Overwatch League and Call Of Duty Leagues. Prior to joining Guild, he held senior esports roles at Activision Blizzard and Red Bull. His expertise complements David Beckham’s position in the world of mainstream sports to create a unique esports proposition.

Guild intends to develop into various esports disciplines over the course of the 2020/2021 season with its first team making its debut in autumn 2020 expecting to compete in the most popular titles including Rocket League, EA Sports FIFA, and Fortnite. The Company’s ambition is to build a culture of excellence around its brand and digital presence.

At the same time and connected to the launch, the Company announced that it was making a further investment of £480,000 into the Guild in order to retain its shareholding at 11.7 per cent. The investment has been made at a price of 6p per share, which compares to the Company’s initial investment at 1p per share.

Googly is an esports tournament operator based in India. This is a large and fast-growing esports market, with prize money more than doubling each year in 2017, 2018 and 2019 (data from AFK Gaming). Googly is actively engaged in conversations regarding the development of its business and I am hopeful we will have news later this year. Blue Star’s shareholding in Googly is just over 11%.

The Drops is an esport team operator, based in Canada, which will field teams in Rocket League, Fortnite, FIFA, and CounterStrike Global Offensive. In February 2020 The Drops announced that it had exchanged letters of intent for its entire share capital to be acquired by Fibersources Corporation, an entity listed on the TSX Venture Exchange, in an all-share deal, allowing The Drops to achieve market listed status. Furthermore, The Drops announced that it intended to cancel some founder shares, which would increase Blue Star’s holding from 13.6% to 18.6%. We are awaiting further news on this transaction which has been impacted by recent events connected to Covid 19.

Diemens Esports , formerly The Cubs, operates in the Australian market. In February 2020 Diemens announced its intention to merge with Critical Hit Entertainment PTY Ltd (CHE) and should the transaction proceed, Blue Star’s stake in the combined entity will be 6.6%. The board of Blue Star is still awaiting news regarding the proposed transaction.

The Dibs is an esports team operator based in Los Angeles that will field an all-female teams in major e-sport tournaments. This business is at an early stage, with the potential to grow strongly. Blue Star holds a US$185k convertible loan note, which will represent a 13.7% holding in The Dibs Esport Corp upon conversion.

Sthaler Limited (“Sthaler”)

Company Description

In June 2015 the Company invested £50,000 in Sthaler Limited, an early stage identity and payments technology business which enables a consumer to identify themselves and pay using just their finger at retail points of sale.

Sthaler was founded in 2012 when it was introduced as a biometric identity authentication and payment platform into the UK live entertainment industry with British Telecom and Bancorp/Elavon. The system, named Fingopay, uses a biometric called VeinID which instantly recognises an individual through the unique pattern of veins inside each finger. In same year, the Company also entered into a long-term partnership with Hitachi for exclusive use of Fingopay across many areas of the globe.

During the period of 2016-2019 the Company conducted several successful authentication security trials with Hitachi, Visa, Mastercard, Worldpay and Ernst and Young. In 2019 Fingopay was deployed in Denmark with Nets and Dankort, the Danish national debit card scheme. In 2020, Fingopay was piloted successfully by the UK’s Open Banking Authority with the Financial Conduct Authority to introduce a new fraud free bank-to-bank account payment scheme.

The largest market the company is currently targeting is Egypt, with a population of 100 million. Fingopay is now being piloted in Egypt by the banking industry to authenticate payment transactions and by the Ministry of Supply to authenticate government food subsidies. The Egyptian approach came from global television coverage of Fingopay including CNBC, BBC, Al Jazeera and Fox, to name just a few. In addition, Fingopay has won the following awards this year: • The Fintech Power 50 – Most influential, innovative and powerful figures in the Global Fintech industry 2020 • Card & Payment Industry Awards – Industry Innovation of the Year 2020 • Fast Company – Top 50 World’s most Innovative Companies 2020.

Blue Star’s Shareholding in Sthaler

The Company’s shareholding in Sthaler is valued on the basis of the last fundraise at approximately £350,000.

Outlook

The recent esports announcements relating to the Guild and Dynasty have helped to illustrate the potential upside from our esports investment portfolio and the Board remains highly confident that this new area of investment offers the potential for a significant improvement in net asset value. Our long-term shareholdings in payment companies SatoshiPay and Sthaler continue to progress and while taking time to mature provide another exciting area of investment. Overall, we are pleased with progress over the period and look to the future with confidence.

Derek Lew

Non-Executive Chairman

30 June 2020


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