Executive Narrative
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Valour's ETP products drove significant performance, achieving $38.8 million in net inflows during Q3 and $116.2 million year-to-date, contributing to a record average AUM exceeding $900 million.
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Stillman Digital continues to strengthen its institutional trading position, generating $2.2 million in trading commissions in Q3 and enhancing liquidity provisioning through integration with the Talos network.
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The company maintains strong financial health with nearly $120 million in cash and $46.2 million in digital assets, providing flexibility for growth initiatives, buybacks, and potential acquisitions.
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Despite a delay in DeFi Alpha opportunities due to market consolidation and the rise of digital asset treasury companies, the core business remains strong, diversified, and profitable, with a reiterated core revenue forecast of $116.6 million for 2025.
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Olivier Roussy Newton announced his resignation as CEO after three transformative years, expressing pride in scaling the ETP platform, strengthening the capital base, and delivering record financial results, and will remain a significant shareholder and advisor.
Forward-Looking Commentary
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The company reiterates its core revenue forecast of $116.6 million for 2025, with the $102 million in DeFi Alpha-related revenues expected to be deferred over a longer period.
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Achieving the core revenue forecast is contingent on a modest rally in cryptocurrency prices by year-end, with management expressing a bullish outlook on crypto prices in the coming months.
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The $100 million equity raise will support increasing staking back to the 70%-plus target, facilitate ETP market-making, provide working capital for DeFi Alpha trades, and fund other growth initiatives.
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New product launches, including UCITS funds and actively managed certificates, are anticipated before year-end, requiring initial seed capital that will be redeemed upon reaching critical AUM mass.
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Management is optimistic about expanding into new geographies, with a strategic approach to market selection and confirmation of success in securing a listing in a significant new market, pending regulatory and exchange approval.
Notable Items & Risk Factors
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DeFi Alpha opportunities have been delayed due to the proliferation of digital asset treasury companies and consolidation in digital asset price movements, impacting arbitrage opportunities and compressing profits.
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The company repurchased just under 1 million shares for $2.44 million under its NCIB buyback program, with plans to continue executing this program given the increased cash position.
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A temporary dip in staking and lending income yield was observed in Q3 due to lower protocol rewards, but management expects yields to increase with the deployment of capital post-financing.
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The company is actively seeking accretive M&A opportunities, leveraging its strong balance sheet and capital position to pursue strategic deals that align with long-term growth prospects.
Q&A Highlights
Hedging of Alpha trades and locked token exposure
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The principal of the SUI trade and other historical trades is 100% hedged, with a portion of the locked-in profit retained in tokens, leading to market correlation for that profit component.
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For assets where the company lacks high conviction, all profits are retained in fiat; for others, a portion of profit is kept in the asset to support ecosystems where the company has strong belief and product presence.
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The company aims to retain profit in tokens for assets where they have high conviction and are building products, believing in the upside potential and supporting those ecosystems.
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Key messages for long-term shareholders and future milestones
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The long-term core strategy remains focused on maximizing AUM and monetization rates by expanding into new products, second/third-generation products, and new vehicles to access different capital pools.
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Expect a high pace of execution in the core strategy, with a focus on new vehicles and value-added products like leveraged products, bonds, hedge funds, and UCITS funds to tap into larger, global markets.
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The company has upgraded its infrastructure, allowing for more efficient collateral use and deployment of a higher percentage of its balance sheet in income-generating activities, leading to higher monetization rates.
Influence of Digital Asset Treasury (DAT) companies on DeFi Alpha
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DAT companies caused delays in some larger DeFi Alpha deals as they explored public market participation or alternative financing, leading to high premiums and creative solutions that did not materialize.
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Some delays were also due to specific asset price levels not being met, independent of DAT companies, with the expectation that markets will recover to enable execution of these deals.
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The hype around DAT companies has subsided, leading to more available deals for the company as counterparties reconsidered their financing strategies.
Investment pipeline and M&A strategy
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The company is highly selective in M&A, seeking opportunities that strengthen long-term growth, enhance vertical integration, and align with strategic goals, saying no to approximately 9 out of 10 suggestions.
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Consideration is being given to entering the U.S. market with a differentiated offering and strong distribution, with several potential opportunities being evaluated in that space.
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The company is also focused on internally growing new business areas to increase profitability and vertical integration, aiming to reduce reliance on outside suppliers.
Revenue mix evolution with new strategic initiatives
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New initiatives like advisory, stablecoins, and sovereign debt are synergistic with existing businesses, aiming to tap into new capital pools and benefit all sides of the business.
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It is too early to provide a specific revenue mix forecast for the next year, but the focus is on building synergistic, stand-alone revenue generators that are cash flow positive and enhance the company's unique competitive edge.
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Investments are made in initiatives with a high conviction for long-term robustness and uniqueness, making it harder for competition to impact core drivers, with stablecoin investments being a prime example of strategic positioning.
