A few weeks ago Temasek, the investment company owned by the Government of Singapore, released its annual investment review for the 12 months ending 31 March 2021 (FY 2021).
As long-term investors in Singapore, Temasek’s consistent long-term returns have always been something to monitor as the organisation embodies the ethos of “riding the trend”.
Overall, Temasek performed well in FY 2021. It ended the period with a portfolio value of S$381 billion while its one-year total shareholder return (TSR) was 24.5%.
One of the biggest sectors that it has exposure to is “Financial Services”. We’re probably all aware that it owns a significant chunk of leading Singapore bank DBS Group Holdings Ltd (SGX: D05).
However, it also has holdings in many other global financials firms – many of which have seen exceptional growth over the past year.
With that, here are the three top-performing financials stocks, over the past 12 months, that Temasek owns.
With a TSR of an incredible 325% over the past year, Bill.com Holdings Inc (NYSE: BILL) is a cloud-based software provider that helps small and medium-size businesses (SMBs) automate their back office financial operations.
Ever since listing at the end of December 2019, Bill.com shares have done extraordinarily well – rising over 425% in less than two years.
Bill.com pegs its total addressable market (TAM) globally at US$30 billion and with trailing 12-month revenue of just US$202 million, the company has a huge runway for growth.
Helping SMBs automate a lot of the inefficient (and paper-based) functions associated with processing, approving and paying invoices, Bill.com is delivering an in-demand product to a large but underserved market.
Bill.com notched up impressive 45% year-on-year growth in its latest quarter to hit US$60 million.
More encouragingly, all the metrics on customers, transactions and total payment volume (TPV) continue to trend in the right direction (see below).
Source: Bill.com Q3 fiscal year 2021 earnings presentation
With a gross margin that’s consistently over 70%, Bill.com should continue to benefit as it scales up and grows its customer base further.
Anyone who had made an online payment this century will likely have heard of PayPal Holdings Inc (NASDAQ: PYPL).
PayPal operates an online payments system that had morphed into much more than that. In the US, it now offers peer-to-peer payments through Venmo while it also recently launched a cryptocurrency trading service.
Unsurprisingly, its customer base has ballooned. As of the end of the first quarter this year, PayPal had 392 million active account globally, which was up 21% year-on-year.
Meanwhile, TPV hit US$285 billion during the quarter and now tops US$1 trillion on a 12-month trailing basis.
PayPal CEO Dan Schulman has spoken openly about his desire to turn the company into a “financial superapp” where multiple financial needs of consumers are met within its ecosystem.
It’s a lofty ambition but given PayPal’s explosive growth (its shares have risen over 720% in the past five years) and a current market cap of US$360 billion, it’s entirely possible that PayPal could become the next US$1 trillion company.
Adyen N.V. (AMS: ADYEN) (OTC: ADYEY) is a Dutch payments company that allows digital payments for businesses, enabling e-commerce, mobile and points-of-sale (POS) payments.
Over the past year, Adyen’s Amsterdam-listed shares on the Euronext have risen by 147% as it also benefitted from the explosion in e-commerce seen around the world.
Unlike a PayPal, Adyen is more similar to payments processor Stripe – giving businesses the ease to build in an online payments platform.
Net revenue for 2020 was €684 million (US$806 million), which was up 28% year-on-year. Growth in North America was particularly strong for Adyen (up 66% year-on-year) and a good sign that the company is starting to make inroads into the massive US market.
One of the big benefits Adyen has is the scalability of its platform, which allows for an incredibly low capex.
As a result, the company generates a lot of free cash flow, with its free cash flow of €371 million in 2020 up 29% year-on-year.
Banking on the future
Temasek can benefit from not having the same short-term afflictions that many money managers possess. That allows it to think long term and, thus, invest with the long term in mind.
As a result, Temasek’s exposure to the financials space has seen some incredible winners over the past year as the digital payments space rides structural trends that will likely continue to the next decade or so.
As individual investors, we can learn a lot from the types of companies that Temasek is investing in and where it is seeing opportunity over the next five to ten years.
Disclaimer: ProsperUs Head of Content Tim Phillips owns shares of DBS Group Holdings Ltd and PayPal Holdings Inc.
Tim, based in Singapore but from Hong Kong, caught the investing bug as a teenager and is a passionate advocate of responsible long-term investing as a great way to build wealth.
He has worked in various content roles at Schroders and the Motley Fool, with a focus on Asian stocks, but believes in buying great businesses – wherever they may be.
In his spare time, Tim enjoys running after his two year-old son, playing football and practicing yoga.