DNB Markets: VEF - Trading 21% below NAV

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VEF continued the strong 30%+ NAVPS CAGR seen over the past six years, while its share price appears to have decoupled from NAV: it is trading 21% below NAV (compared to its recent 20%+ above). As we continue to believe Creditas could seek a US IPO in 2022, VEF may offer the highest NAV growth prospects in the investment company sector for 2022 as well as insulation owing to its sharp difference to NAV. If not for its pending main market re-listing, we believe the company would buy back its own shares at the current share price. We have raised our fair value to SEK6.8–8.1 (5.5–7.0) on our updated NAV forecasts.

Our takeaways from VEF's Q4 results. 1) Despite the strong 2020, VEF reported 56% NAVPS growth YOY in 2021 (72% in local currencies), highlighting the robust execution and scarce exposure offered by VEF's portfolio. 2) VEF invested USD84m in 2021, most recently in Creditas, Juspay, Rupeek, and Abhi. 3) With a USD62m net cash position, VEF appears well-capitalised to support its holdings. It stated that its largest holdings, which compose 80%+ of NAV, are well funded, and it does not have to raise capital in H1. 4) In 2021, VC investments in Latin America tripled (fintech represented ~40% of the USD15bn in deal volumes), suggesting that investors are interested in exposure to the region's benchmark companies.

US IPO coming closer for Creditas (~50% of VEF's NAV). In January, Creditas –Brazil's leading digital secured-lending platform – raised USD260m at a USD4.8bn valuation. The valuation corresponds to a ~3x value uplift from its December 2020 funding round, implying ~25x 2021 P/sales (compared to Nubank at 26x). Fidelity led the funding round (in which VEF participated with USD25m), which should allow Creditas to fuel investments in technology, marketing, operations, and additional M&A. If Creditas reports ~2x revenue growth YOY in 2022 (~3x in 2021), we believe it could seek a US market listing at a USD7.5bn+ valuation based on the multiples in the recent funding round. According to the Brazilian financial paper Valor Econômico, Creditas is in talks with potential underwriters for a deal at a USD7bn–10bn valuation, which we estimate could trigger an additional ~30–60% in NAV growth for VEF in 2022.

Wider gap to NAV could signal the market expects markdowns in Q1. We calculate that the multiples for its holdings' fintech peers have contracted by ~20% since end-Q4, which could spark investor concerns that reported Q4 NAV does not correctly illustrate its results. However, we expect only 5% of VEF's NAV to be based on mark-to-model valuations by end-Q1. Even if we assume a 20% lower value on VEF's total NAV excluding Creditas, the stock would still be trading 13% below NAV.

Fair value raised to SEK6.8–8.1, based on our four equally weighted valuation methodologies assuming a 15% premium to our NAV target. We see good prospects for VEF to maintain its value-creation track record (NAVPS IRR of 30% since 2016), while we note that the market is implicitly assuming that it should generate a 19% ROIC over the coming five years. If not for VEF's pending list change, we believe it would have started to buy back shares when trading at this discount to NAV.

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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