DNB Markets: VEF - Continues to play defence

VEF has taken a conservative stance on its NAV while adjusting its holdings growth strategies through 2022–2023, with cash available equal to 11% of NAV in a tighter liquidity environment. We believe the main potential NAV catalysts that could challenge VEF shares’ 42% discount to NAV are: 1) Creditas nearing its break-even ambitions (volume growth, widening margins, and lower CAC); 2) funding rounds at or above VEF’s reported NAV (mainly Juspay); and 3) a continued recovery in long-duration growth valuation multiples, should interest rates peak. We have raised our fair value to SEK3.3–5.7 (3.0–5.7).

Q1 takeaways. 1) VEF marked up its portfolio by 7% QOQ in Q1, adjusted for net investments (versus Swedish investment company peers Creades and VNV Global at 1–14% QOQ), mainly reflecting a rebound in listed fintech peers' multiples; 2) the most notable value changes were (on the positive side) Gringo (+68%) and Juspay (+32%) and (on the negative side) Magnetis (-87%) and Rupeek (-44%); 3) underlying portfolio performance remains strong and VEF continues to expect portfolio-weighted 2023 revenue growth of ~56% YOY (from 65% YOY in Q4 as Rupeek has increased its focus on break-even); 4) Creditas's Q4 esults signalled further progress on its route to profitability amid still-high, but moderated growth (118% and 59% YOY in revenues and loans, respectively) and we calculate Creditas's 2022 net loss at ~USD200m (versus the USD310m it has raised since Q4 2021 plus a USD50m convertible note), while it reiterated that it targets break-even (on a quarterly basis) by end-2023, supported by gross margin expansion, CAC, and overhead rationalisations driving operating leverage.

VEF values its portfolio at a weighted 2023 EV/sales of ~6x versus fintech peers at ~7x on our calculations, despite offering a 2–3x higher revenue growth profile on a path to profitability. VEF remains consistent in its valuation processes with 90%+ of its NAV based on marked-to-model valuations (tied to public markets).

VEF reiterated its cash flow projections for 2023 and expects to use ~USD18m of its USD46m cash available in 2023, split: ~USD6m for portfolio needs (excluding opportune funding rounds in its larger holdings), ~USD3m for buybacks, ~USD4m for coupon payments, and ~USD5m for overhead costs, while ~71% of its NAV is funded for break-even with existing capital positions and the remaining ~29% of NAV with a weighted cash runway of 15 months. We calculate that VEF is not close to its covenant levels with a net debt to NAV of 1% (20% ceiling) and equity ratio of 95% (80% ceiling), suggesting headroom of ~USD60m–80m versus a conservative NAV.

Fair value raised to SEK3.3–5.7 (3.0–5.7). YTD, VEF's share price is down 3% (in SEK) versus the Global X Fintech index and ARK Fintech Innovation ETF, which are up 10–30% in USD. Despite having marked down its NAV by 35% from end-2021 (adjusted for net investments), VEF's shares are still trading at a 42% discount to its reported NAV (versus its 20% historical average). We note VEF's high-beta characteristics should interest rates peak in 2023e.

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Best regards

Joachim Gunell | DNB Markets | Equity Research Sweden

Email: Joachim.Gunell@dnb.se