VEF : Pareto Securities - research on VEF - July 21

Onwards and upwards

VEF released Q2 2021 figures broadly in line with our expectations. In our view, however, the real attention grabber this week was Creditas' (42% of VEF's NAV) Q2 2021 numbers, which came in significantly above our expectations. We raise our growth outlook for Creditas materially. The VEF share has been a strong performer lately, but we believe there should be further upside ahead. Buy reiterated, TP raised to SEK 5.50 (4.66)

Stable quarter with high activity - USD NAVPS +0.2% q/q

VEF's Q2 report was mainly in line with our expectations. USD NAVPS grew by +0.2% q/q and was positively affected by 18-32% higher valuation marks for JUMO, REVO, Magnetis and Juspay. During the quarter, Guiabolso was marked down to zero and exited fully in late July. The global fintech funding market surpassed all previous records in Q2. This was also noticeable at VEF, which invested USD 23.5m during the quarter compared with USD 9.0m in Q1. During Q2, VEF led a seed round in the new portfolio company Abhi, investing USD 0.9m, and made follow on investments into Konfio (USD 19.8m) and TransferGo (2.8m). After the end of the quarter, VEF announced a USD 10m investment into BlackBuck, bringing its cash position to a historically low level of USD ~11.3m, we reckon.

Creditas: Growth accelerating further in Q2 2021

Growth at VEF's most important portfolio company Creditas (42% of NAV) seems to be accelerating further. The Q2 2021 numbers released on 26 July, showing +30% q/q credit portfolio growth and +37% q/q revenue growth, beat our expectations handsomely. In this report, we summarise some of our main takeaways from a discussion we had with Sergio Furio, CEO and founder of Creditas, on 8 June and also examine the company's three recent investments/acquisitions in more detail. We expect Creditas' rapid growth to continue and forecast 2022 total revenues to reach USD 327m. In our SOTP valuation, we value VEF's stake in Creditas at USD 293.2m, +73% compared to the USD 169m reported value as of Q2 2021 (unchanged since Q4 2020).

Onwards and upwards - Buy, TP raised to 5.50 (4.66)

The VEF share has been a strong performer lately and is currently trading at a 13.3% premium to reported NAV. We attribute the premium valuation to 1) a general rerating of Swedish investment companies during 2020 and 2021, and 2) investors starting to recognise and put a value on Creditas' high growth as it gets closer to a potential IPO in 2022/23. We continue to highlight that VEF has achieved the highest NAVPS CAGR (including reinvested dividends) and TSR of all investment companies within our coverage since Q4'15. Despite the strong recent performance, we believe there should be further upside ahead. Buy reiterated, TP raised to SEK 5.50 (4.66).

VEF

Update

29 July 2021

Target price (SEK)	5.5
Share price (SEK)	4.8
Ticker	VEFAB.ST, VEFAB SS
Sector	Diversified Financials
Shares fully diluted (m)	834.5
Market cap (USDm)	460
Net debt (USDm)	-11
Minority interests (USDm)	0
Free float (%)	45

Performance
SEK
5.2
5.0
4.8
4.6
4.4
4.2
4.0
3.8
3.6
Jul-21
VEFAB	OMXS (Rebased)

Source: Factset

Analyst

Herman Wartoft

[phone], [e-mail]

Please refer to important disclosures on the last 5 pages of this document

This report is generated for Henrik Stenlund

VEF

Update

VEF Q2: Stability and high activity - USD NAVPS +0.2% q/q

JUMO, REVO, Magnetis and

VEF released an overall stable Q2 report, with NAV reaching USD 404.3m (USD

Juspay driving NAV growth

0.48/SEK 4.12 per share), corresponding to q/q growth of +0.2%. JUMO, REVO,

Magnetis and Juspay, all valued using a mark-to-model approach, contributed the

most, as their values increased by 18-32% q/q through a combination of solid

performance and currency and multiples strength. Guiabolso, which has been

marked down continuously since VEF's initial USD 30m investment in Q4 2017,

was marked down to zero in Q2 2021. However, in late July, Guiabolso was

acquired, leading VEF to exit the position and recoup USD ~3m. The ~90% loss

over the close to 4-year holding period translates into an IRR of -48%, the first

significant blemish in VEFs otherwise solid investment track record.

25% average SEK NAVPS CAGR since Q4 2015

NAVPS, SEK

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0

0.5

0.0

Source: Company data

USD 23.5m invested during Q2, compared to USD 9.0m in Q1

Compared to Q1 2021, the portfolio activity increased further in Q2, with VEF investing a total of USD 23.5m during the quarter compared with USD 9.0m in Q1. During the quarter, VEF led a seed round in the new portfolio company Abhi, investing USD 0.9m, and made follow on investments into Konfio (USD 19.8m) and TransferGo (2.8m).

Moreover, VEF completed its redomestication from Bermuda to Sweden during Q2. As part of the redomestication, VEF Ltd. has been replaced as the parent company of the VEF group by its former subsidiary VEF AB. We are positive toward the redomestication and view it as a way for VEF to strengthen its governance function and become more investable for certain institutional investors.

Q2 2021 global VC fintech funding surpassing all previous records

To say that the fintech funding market has been hot during 2021 would be an understatement of significant proportions. According to the latest CB insights Q2 2021 state of fintech report, Q2 2021 was the largest fintech funding quarter on record, with VC-backed fintech companies globally raising a record USD 30.8bn across 657 deals. The total funding volume YTD exceeds the 2020 total by 24%, with 1/5 of all VC dollars globally going to the fintech sector.

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VEF

Four new portfolio companies added YTD: Rupeek, minu, Abhi and BlackBuck

Update

YTD VC fintech funding exceeding the 2020 total by 24%

Global VC-backed fintech funding volume, USDbn

35

30.8

30											23.6
25
20							13.3
15					11.3		11.8	10.5	10.5	11.0
		8.4	8.4	9.7	9.2	10.5
10

5

0

Source: CB insights

While many large raises from the likes of Klarna, Nubank and Trade Republic have been key drivers behind the unusually high transaction volume, the number of deals was also unusually high during Q2 at 657, surpassing the Q1 2021 previous high of 646.

On the investment front, the strong momentum for VC-backed fintech has led to higher-than-expected investment activity also for VEF. As previously highlighted, VEF added two new portfolio companies, Rupeek and minu, in Q1 and made follow-on investments in Finja and FinanZero. In Q2, VEF announced another new portfolio company, Abhi. After the end of the quarter, VEF also announced a USD 10m investment in BlackBuck, bringing the current number of portfolio companies to 15 (after the announced Guiabolso exit) compared to 12 at the start of the year. Below is a brief introduction to Abhi and BlackBuck, the two latest additions.

Abhi (0.5% of NAV) - A pioneer in the Pakistani salary advances market

On 6 June, VEF announced a USD 0.9m seed investment into Abhi, a fintech startup focusing on employee salary advances in the Pakistani market. The operating model resembles that of VEF existing portfolio holdings Xerpa and minu and is also being pursued by Creditas in its Payroll vertical. Similar to minu, Abhi integrates with corporates, allowing them to offer their employees salary advances at no extra cost. VEF views the salary advance product as a great way to reach consumers, build credit history and a starting point for adding additional consumer credit products in the future. Out of Pakistan's 216m inhabitants, Abhi estimates that less than 2m people currently have access to formal credit.

VEF led the USD 2m funding round that received participation from international and local investors, including Village Global, Sarmayacar, i2i Ventures, Zayn Capital, Portman Wills, the co-founder and CTO of Wagestream, a similar leading service in the UK. Following the investment, VEF holds a 15% stake in the company.

BlackBuck (2.5% of NAV) - India's largest online trucking platform

On 22 July, VEF announced a USD 10m investment into BlackBuck, India's largest online trucking platform. VEF participated in a broader equity financing round totalling USD 67m led by Tribe Capital and IFC Emerging Asia Fund and holds a minority stake in the company post the transaction. The investment is VEFs third in India, after Juspay in Q1 2020 and Rupeek in Q1 2021.

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VEF

Current net cash position of USD ~11.3m…

…with several interesting investment opportunities ahead

Update

According to VEF, BlackBuck is the largest online trucking platform in India, with a 90%+ market share of all online trucking activity. BlackBuck digitises fleet operations for truckers (providing predominantly payments solutions around tolls and fuel) and operates a marketplace with 700k+ truckers and 1.2m+ trucks matched with relevant loads. The platform sees over 15m monthly transactions. BlackBucks is VEFs first investment with a clear embedded finance angle. VEF sees an opportunity to capitalise on the payments that are core to BlackBucks platform, as well as to add complementary financial services in the future. Compared to prior portfolio additions, BlackBuck is a later stage investment. On the Q2 earnings call, VEF mentioned that the USD 10m investment will yield a ~1% stake in the company, translating into a USD ~1bn market cap for BlackBuck.

Several exciting investment opportunities ahead

Factoring in the announced BlackBuck acquisition and the Guiabolso exit, we estimate VEFs current net cash position to be USD ~11.3m, a historically low level. Since the USD 61m equity raise in November 2020, VEF has made net investments totalling USD 65m, most of which has gone to its two major portfolio holdings Creditas and Konfio, together representing 61% of NAV as of Q2 2021. 10 out of 15 portfolio companies have raised capital during the past 12 months, with the exceptions being Juspay, JUMO, Revo, Magnetis and Xerpa. On the Q2 earnings call, VEF stated that it sees Juspay, Jumo and TransferGo as especially well-placed to secure new funding. Moreover, we believe that an additional funding round for Creditas prior to its planned IPO in 2022 2023 can not be ruled out. If VEF were to take its pro-rata share in all potential upcoming financing rounds, the company estimates a USD 30-40m total funding need among the existing portfolio companies over the next 6-12 months.

Given VEF's expanding opportunity set of follow on investments as well as potential new portfolio additions, we would not be surprised to see VEF raising additional equity capital or making one or two exits in the near future. Considering VEFs current valuation at a premium to NAV and the higher-than- usual number of portfolio companies, we think both would make sense. Regarding new investment opportunities, VEF has mentioned Turkey and Egypt as two interesting geographies, but further opportunities in Brazil and India should remain highly attractive, we reckon.

Net cash position development since Q3 2020, USDm (PAS estimate)

Source: Company data, Pareto Securities

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VEF

Update

Creditas: Strong Q2 with more to come

Creditas' Q2 2021 results beat our expectations handsomely

At 42% of NAV, Creditas represents VEF's most important holding. Creditas offers collateralised loans across the three segments Home equity, Auto loans (financing and refinancing) and Payroll loans. As upwards of 70% of all real estate and cars in Brazil are owned on a debt-free basis (TAM of USD ~3tn), and unsecured credit often carries APRs stretching into the hundreds, Creditas sees an opportunity to replace costly unsecured loans with cheaper, collateralised ones. The loans are securitised and sold to investors, leading to very low balance sheet risk for Creditas.

On 26 July, Creditas released its Q2 2021 results, showing growth accelerating compared to Q1. During the quarter, q/q credit portfolio growth was +30% (PAS: +21%) as the total credit portfolio reached BRL 2015.2m (USD 391m). Moreover, the NBI-margin improved to 38% (PAS: 35%). New loan origination during the quarter reached BRL 613m, a whopping +541% y/ increase from Q2 2020, which was a quarter heavily impacted by Covid-19.

Growth accelerating in Q2 2021, with improving margins

BRLm

700																																										613
600
500																																							421
400																												268				313
300																												227
																								189
200																						162
																		102							96
100		2	5 17	30 39 50 59 58 78
0
		Q1'17		Q2'17		Q3'17		Q4'17		Q1'18		Q2'18		Q3'18		Q4'18		Q1'19			Q2'19			Q3'19			Q4'19			Q1'20		Q2'20			Q3'20			Q4'20			Q1'21			Q2'21

New loan origination

Source: Company data, Pareto Securities

BRLm
180								170	60%
160									50%
140
							124
120								104	40%
100						80		79	30%
80						73
					67
60						55			20%
40					27	2433			10%
20			4	8 11	1517
1	2
0									0%

Revenues NBI-margin

One strategic investment and two acquisitions announced since the end of May 2021

Creditas continues to dig deeper into its three verticals, growing organically but also through M&A. In Jan 2021, the company announced the acquisition of Bcredi, a digital platform focused on real estate financing. Since the end of May, Creditas has announced two acquisitions and one strategic investment; all specifically focused on strengthening the auto vertical:

1. A BRL 95m strategic investment into electric vehicle manufacturer Voltz

On 24 May, Creditas announced a BRL 95m investment into Voltz, a pioneer in the Brazilian electric motorcycle market. Creditas led a BRL 100m round, which also included UVC, the venture arm of Grupo Ultra. By being an early investor in Voltz, Creditas can offer financing for customers purchasing a Voltz motorcycle. In addition to the financing angle, the Voltz investment also offers several attractive ancillary business opportunities such as behavioural-based insurance and battery swapping and renting. Furthermore, the motorcycles could be sold through the recently launched Creditas Auto service, enabling customers to purchase autos in a fully remote way.

With 95% of motorbike sales captured by incumbents Yamaha and Honda, both of which operate with their own financing arms, the traditional banks have had a hard time penetrating the motorcycle financing business. We believe the

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