DNB Markets - VEF: Many shots at goal

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VEF is increasingly getting recognition for its impressive 5-year NAVPS CAGR and rare emerging market VC fintech portfolio, in our view, with its discount to reported NAV reversing to a 29% premium. This implies the market believes it can generate a ~25% IRR from its unlisted portfolio over the next five years (3.2x MOIC), in line with its track record. VEF is well capitalised after its capital raise, reducing the financial risk, and we see ~20% 12-month forward NAV growth, with several potential NAV catalysts to support a re-rating. We have raised our fair value to SEK5.5–7.0 (4.6–6.2).

What we learnt from VEF’s Q3 results: 1) VEF’s NAVPS is up 21% YTD in local currency; 2) Konfio (24% of its NAV) became VEF’s next ‘unicorn’, raising USD100m at a USD1.3bn valuation, signalling there is still a lot of capital chasing the most attractive fintech assets, while Konfio is now well capitalised and we believe is set to accelerate growth and seek complementary acquisitions (based on its holding, VEF still sees a 30%+ IRR potential at these levels); 3) VEF appears ready to take the next step, having completed a SEK885m directed share issue, taking net cash to USD97m (17% of its NAV), which and should facilitate an acceleration of its investment strategy and step up its pro rata in funding rounds for holdings like Creditas, Juspay, and Rupeek; 4) VEF’s exit from Xerpa (at an IRR of 58% and a MOIC of 0.1x) highlights the risks in its investment strategy, but a diversified portfolio mitigates this, in our opinion (at least 3–5 holdings that could really move the needle for VEF’s NAV, we believe); and 5) VEF said it is exploring a re-listing on Nasdaq Stockholm’s main market by mid-2022, which could broaden its potential institutional investor base.

Latest on Creditas (31% of NAV) as a value catalyst for VEF. Strong Q3 results from Creditas included: 1) 313% YOY growth in loan origination; 2) 233% revenue growth YOY (213% organic); and 3) a 55.2% contribution margin. Creditas also partnered with Nubank that: 1) provides validation of Creditas’ leading consumer lending platform; 2) builds a distribution channel for Creditas to cross-sell to Nubank’s 40m customers (Creditas has 120k customers) and we estimate should elevate its revenue CAGR above 2x; 3) brings a new funding partner for Creditas to expand its credit capacity; and 4) allows Nubank to become a minority owner of up to 7.7% in Creditas over the next two years, which we expect it to do through future capital raises.

Nubank is seeking a valuation of USD50bn+ in its planned US IPO, which could: 1) add another key valuation reference for some of VEF’s holdings; 2) facilitate a potential US IPO of Creditas in 2022, in our view; and 3) create a ‘war chest' for M&A for Nubank that could be deployed in some of VEF’s leading fintech assets in the region. The proposed IPO valuation of Nubank corresponds to 40x 12-month trailing P/sales, versus Creditas at 17x. Applying Nubank multiples to Creditas would boost VEF’s NAV by ~40%, we calculate.

Fair value raised to SEK5.5–7.0 based on our four equally weighted valuation methodologies assuming a 20% premium to our NAV target. We see good prospects for VEF to repeat its value-creation track record (NAVPS IRR of 25% since 2016).

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Best regards 


Joachim Gunell | DNB Markets | Equity Research
DNB Bank ASA, Filial Sverige
Visiting address: Regeringsgatan 59, Stockholm
Postal address: 105 88 Stockholm
E-mail: joachim.gunell@dnb.se | www.dnb.no