VEF : ABG - Initiation Report on VEF - Aug21

Equity Research - 20 August 2021 06:40 CET

VEF

An emerging star

• A novel play on private fintechs in emerging markets
• NAVPS growth of 25% (CAGR) since inception
• Fair value range per share of SEK 3.4-6.2

An intriguing opportunity to tap into the private fintech market

VEF is an investment company founded in 2015 through a spin-off from VNV Global. The company invests in private fintech players in frontier and emerging markets, with a heavy tilt towards Latin America. We find the opportunity in emerging markets especially attractive, as the segment is estimated to account for 50% of global GDP growth over the next 20 years, thus offering a superior long-term growth profile. In addition, we believe that disruptive digital fintechs can benefit especially in emerging markets as they can help customers avoid the expensive services of traditional banks. We find VEF's profile intriguing, as there are currently few ways to tap into the growing digital fintech theme in either public or emerging markets. VEF targets well-managed businesses with all lines of financial services, including payments, credit, savings and investments. The company focuses particularly on highly populated and scalable markets, such as Brazil, India, Mexico and Pakistan, as these represent the largest structural growth opportunities.

NAVPS CAGR of 25% since inception

VEF primarily targets early to mid-stage fintechs, with the aim of acquiring minority stakes (~10-20%) in order to get board representation. The company aims to be an active, long-term investor, providing experience and in-depth knowledge to help entrepreneurs and their teams advance on their growth journey. Since its inception VEF has built up an impressive track record of creating shareholder value, with a net asset value per share CAGR of 25%. This has been driven by strong value growth from current portfolio investments such as Creditas, Konfio and TransferGo, but also from the exits of Tinkoff Bank and iyzico, both of which generated IRRs of over 50%.

Fair value range per share of SEK 3.4-6.2

We have used three different approaches to derive a fair value range for VEF: 1) a 19% discount to its last calculated NAV, in line with the five- year average discount; 2) a target IRR of 20%, in line with the current IRR average of the portfolio, and 3) a target IRR of 30%, in line with the company's own IRR target. In sum, we arrive at a fair value range of SEK 3.4-6.2.

Analyst(s): [e-mail], [phone] [e-mail], [phone]

SEKm	2019	2020	2021e	2022e	2023e
DPS	0	0	0	0	0
Dividend Yield (%)	0	0	0	0	0

Source: ABG Sundal Collier, Company data

Reason: Initiating coverage

Company sponsored research

Not rated

Share price (SEK)	18/08/2021	4.3
Fair value range (per share)	3.4-6.2
Investment Companies, Sweden
VEFAB.ST/VEFAB SS
MCap (SEKm)		3,597
MCap (EURm)		352
No. of shares (m)		834
Free float (%)		82
Av. daily volume (k)		19

NAV discount

40%

35%

30%

25%

20%

15%

10%

5%

0% -5%

-10%

Source: Company data, Refinitiv, ABGSC Research

Share price (1Y)

VEF share price vs. MSCI EM index

5.5

5.0

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

VEF	MSCI EM Index

Source: Refinitiv, ABGSC Research

NAV data

NAV Per Share	4.3
NAV Discount (%)	-1%
Reported NAV discount (%)	-1%
Target NAV discount (%)	na
Net debt/Assets (%)	na
Source: ABG Sundal Collier, Company data

Please refer to important disclosures at the end of this report

This research product is commissioned and paid for by the company covered in this report. As such, this report is deemed to constitute an acceptable minor non-monetary benefit (i.e. not investment research) as defined in MiFID II.

VEF

Company description

VEF is an investment company focusing on private fintech companies in emerging markets. The company was founded in 2015 through a spin-off from VNV Global. Since its inception, VEF has delivered strong growth in NAV per share, driven by both current portfolio investment and portfolio exits. The company targets fintech companies that are in the early growth stage, where VEF aims to take minority stakes (~10-20%) in order to achieve board representation. VEF aims to be an active, long-term investor and help entrepreneurs and their teams on their growth journey.

Risks

The main risk lies in the general market environment and the fintech sub-sectors in which the holding companies operate. Poorly timed investments and bad investment decisions in general are risks as well. Another risk would be poor performance in the holding companies, which conceivably could be driven by inefficient corporate governance, which could negatively impact the investment community's perception of VEF as an active owner and, in turn, drive the NAV discount higher.

6.0		NAVPS development				4.5		NAVPS vs. share price development		4.2 4.1
										4.0									3.8		3.6	3.8
5.0										3.5								3.4	3.6
							4.2										3.2
								4.1		3.0			2.9
													2.9
4.0						3.8	3.6	3.6 3.8		3.0		2.7	2.8	2.8
3.0			3.0	2.8 2.8 2.9	3.4		2.9 3.2		2.5		2.0 2.0 2.0 2.3 2.5
	2.0 2.0 2.0	2.3 2.5 2.7						2.0	1.2 1.2 1.4	1.6
2.0									1.5
1.4	1.6
1.2 1.2									1.0
1.0
									0.5
0.0										0.0
				Reported NAVPS									Reported NAVPS			VEF share price
Source: Company data, ABGSC Research						Source: Company data, Refinitiv, ABGSC Research

Portfolio Cash on Cash multiples*

USDk

Q2'21 fair value vs. unrealised IRRs

IRR (%)

7x

180,000

80%

6.1x

160,000

6x

60%

140,000

5x

120,000

40%

4x

3.2x 3.1x

100,000

3x

2.7x 2.5x

2.3x

2.1x 2.0x

1.9x 1.9x

80,000

20%

1.6x

2x

60,000

0%

1.1x 1.0x 1.0x 1.0x 1.0x

1x

0.6x

40,000

-20%

0x

0.1x

20,000

0

-40%

CoC multiple

Average CoC multiple

Fair value Q2'21

IRR

Source: Company data, ABGSC Research

* Tinkoff Bank, iyzico & Guiabolso has been divested

Source: Company data, ABGSC Research

20 August 2021

ABG Sundal Collier

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VEF

Contents
Summary ........................................................................................................	4
Positioned for sustainably high growth.........................................................	12
An emerging market play .............................................................................	16
Portfolio companies on the front line of sustainable finance ........................	25
Portfolio overview .........................................................................................	28
Strong financial track record.........................................................................	52
Fair valuation range of SEK 3.4-6.2 .............................................................	55
Risks.............................................................................................................	61
Appendix I - Investment team......................................................................	62
Appendix II - Board of directors ...................................................................	63
Appendix III - Ownership overview ..............................................................	64

20 August 2021

ABG Sundal Collier

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VEF

Summary

VEF is an investment company focusing on private fintech businesses in emerging markets. The company was founded in 2015 through a spin-off from VNV Global. Since its inception, VEF has invested in 18 companies, in different geographies, business models and at various stages of development. Over this period, the company has delivered a net asset value per share CAGR of 25%. This has been driven by strong value growth from current portfolio investments such as Creditas, Konfio and TransferGo, but also from the exits of Tinkoff Bank and iyzico, both of which generated IRRs of over 50%.

Focus on private fintech companies in emerging markets

VEF invests in private fintech companies in emerging markets, with a heavy tilt towards Latin America. The company primarily targets early to mid-stage fintech companies with disruptive digital business models. VEF aims to be an active, long- term investor, providing experience and in-depth knowledge to help entrepreneurs and their teams advance on their growth journey.

VEF's geographical footprint

Russia

Emerging

Europe

Mexico

Pakistan

Africa

India

Brazil

Source: Company data, ABGSC Research

The two largest portfolio companies account for 60% of portfolio NAV

As of its latest reported data (Q2'21), VEF had 15 portfolio companies with a fair value of USD 386m and net cash and equivalents of USD 18m. Its holdings span several geographies, with Brazil the largest, accounting for 55% of the NAV. Latin America as a whole accounts for 74% of the portfolio NAV. The largest holding in the portfolio is Creditas, a Brazilian fintech that offers secured lending through a digital platform. The company accounts for 42% of the NAV. The second-largest holding, accounting for 19% of the NAV, is Konfio, which offers diversified financial services to Mexican SMEs. Since Q2'21, VEF has made one additional investment of USD 10m in an online trucking platform called BlackBuck and has sold Guiabolso for USD 3m. Although the portfolio has some geographical and sub-sector overlap, each company has its own value drivers and challenges.

20 August 2021

ABG Sundal Collier

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VEF

	Pakistan	Geographical breakdown - Q2'21	Xerpa	Abhi	Minu	Guiabolso	Cash & liquidity	NAV breakdown - Q2'21
Russia	0%	0%	0%	investments
2%
4%	Africa		1%					5%
		Rupeek
	4%
		2%	Finja
Emerging Europe
		2%
7%
			Magnetis						Creditas
			3% FinanZero
	India			3%					42%
	8%	Brazil
		55%	Nibo	REVO
	Mexico		3%	4%
	20%			JUMO	Juspay
				4%	6%
					TransferGo
					7%		Konfío
								19%
Source: Company data, ABGSC Research		Source: Company data, ABGSC Research

Portfolio sub-sectors include credit, payments and personal finance platforms

VEF's portfolio companies can be divided into the following sub-sectors: credit, payments, personal finance/investments, financial wellness, accounting SaaS and embedded fintech.

• Credit: Creditas, Konfio, Rupeek, Jumo, Revo and Finja
• Payments: Juspay and TransferGo
• Personal finance/investments and marketplace: FinanZero and Magnetis.
• Financial wellness: Abhi, Minu, Xerpa
• Accounting SaaS: Nibo
• Embedded fintech: BlackBuck

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ABG Sundal Collier

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