DNB Markets: VEF - Mixed signals
VEF marked down its portfolio by 13% QOQ in Q3, putting YTD NAV growth at 11% (in USD), still lagging behind its portfolio peers (up 20–80% in USD). Its share price is down 19% YTD, implying a 56% discount to a fairly conservative NAV. We believe too much focus is placed on balance sheet concerns; our impression is that investors are focused on the bond maturing in Q2 2025, which could drive VEF to strengthen its balance sheet in the next 12–24 months. We note VEF’s high-beta characteristics and expect a continued recovery in long-duration growth valuation multiples, should interest rates peak. We have updated our fair value to SEK3.6–6.0 (3.8–5.6).
Q3 takeaways. 1) VEF marked down its portfolio by 13% QOQ in Q3, split 12% from peers' multiples contraction and 2% from negative FX changes, offset by 1% new investments and other. This corresponds to a 11% YTD NAV rise in USD, which means that VEF has still marked down its NAV by 40% from end-2021 highs (adjusted for net investments), which reflects conservatism, in our view; 2) value changes in Q3 were (on the positive side) TransferGo (+42%) and Nibo (+10%) and (on the negative side) Creditas (-14%) and Juspay (-11%); 3) we see encouraging trends in the Brazilian market, with tailwinds from a decreasing central bank rate, although our impression is the timing of an IPO of Creditas (43% of VEF's NAV) now looks more like H1 2025e than H2 2024e; and 4) the underlying portfolio performance remains strong; however, VEF slightly lowered its portfolio-weighted 2023 revenue growth expectations to ~40% YOY as its earlier-stage companies focus on extending runways.
Gringo (4% of VEF's NAV) raised USD30m in a series-C round, validating its reported NAV. We note the round was led by an external investor (Valor Capital), where VEF took roughly its pro-rata share (USD3m), and see it as a sign of strength that its solidly performing holding was able to raise capital in the current tough VC environment at a higher valuation than its previous round, while also validating VEF's fair reported NAV (to which the stock is trading at a 56% discount).
VEF values its portfolio at a weighted 2023 EV/sales of ~5x, in line with fintech peers on our calculations, despite offering a c2x 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).
Fair value changed to SEK3.6–6.0. VEF expects an end-2024 cash position of USD21m, as it expects to use ~USD14m of its USD35m cash available over the next 15 months, as ~93% of its NAV is funded for break-even with existing capital positions and the remaining ~7% of NAV with a weighted cash runway of 27 months. We believe too much focus is placed on balance sheet concerns; our impression is that investors are focused on the bond maturing in Q2 2025, which could drive VEF to strengthen its balance sheet in the next 12–24 months.
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Best regards
Joachim Gunell | DNB Markets | Equity Research Sweden
Email: joachim.gunell@dnb.se
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