Annualised ROE ex-Ukraine of 9.5% in H122

ProCredit Holding 17 August 2022 Update
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ProCredit Holding

Annualised ROE ex-Ukraine of 9.5% in H122

Q222 results

Banks

17 August 2022

Price

€3.48

Market cap

€205m

Total assets (€bn) at end-March 2022

8.2

Shares in issue

58.9m

Free float

38.7%

Code

PCZ

Primary exchange

Frankfurt Prime Standard

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(3.6)

(15.1)

(53.6)

Rel (local)

(10.8)

(14.8)

(46.9)

52-week high/low

€8.60

€3.26

Business description

ProCredit Holding is a Germany-based group operating regional banks across South Eastern and Eastern Europe and Ecuador. The banks focus on SMEs and private middle-income and high earners

Next events

Q322 results

10 November 2022

Analyst

Milosz Papst

+44 (0)20 3077 5700

ProCredit Holding is a research client of Edison Investment Research Limited

ProCredit Holding (PCB) continues to incur high loss allowances in Ukraine, booking €21.2m in Q222 versus €35.3m in Q122. However, ProCredit Bank Ukraine’s operations are mostly uninterrupted, with its CET-1 ratio 4pp above the regulatory requirement at end-June 2022. PCB’s operations outside Ukraine benefitted from solid loan book growth and a higher net interest margin (NIM), which coupled with a marginal cost of risk translated into an annualised return on equity (ROE) of 9.5% in H122 (close to the mid-term target of 10%). PCB’s shares trade at c 0.23x FY22e book value (P/BV).

Year end

Net interest income (€m)

EPS
(€)

DPS
(€)

P/BV
(x)

P/E
(x)

ROE
(%)

Yield
(%)

12/20

201.6

0.70

0.53

0.3

5.0

5.3

15.2

12/21

222.0

1.35

0.00

0.2

2.6

9.7

0.0

12/22e

254.7

0.40

0.00

0.2

8.8

2.7

0.0

12/23e

279.5

1.42

0.47

0.2

2.5

8.9

13.6

Source: ProCredit Holding, Edison Investment Research; Note: EPS as reported by the company.

Benign market conditions outside Ukraine in Q222

PCB reported a 24.1% y-o-y increase in operating income before loss allowances to €82.5m, assisted by a 20% y-o-y increase in net interest income (NII) on the back of a 4.4% q-o-q increase in the loan book in Q222 and a higher NIM of 3.1% (2.9% in Q221). Q222 earnings were further supported by 12.7% y-o-y growth in net fee and commission income. This allowed PCB to further realise its scaling potential, leading to an improvement in its cost-income ratio (CIR) to 61.0% in Q222 versus 64.0% in Q221. PCB’s CET-1 ratio at end-June 2022 was 13.7% versus a regulatory requirement of 8.2%.

Provisioning in Ukraine continues

PCB’s cost of risk reached 188bp in H122, almost entirely due to Ukraine, driven by transfers to Stage 2 (35% of the local loan book at end-June 2022) and Stage 3 (ie credit-impaired loans, 4.8%). Consequently, 10% of the entire Ukrainian loan portfolio was covered by provisions (excluding guarantees and collateral) and the Stage 3 coverage ratio reached 55.6%. Q222 provisions at the group level were up c 8% versus our earlier assumptions and we now forecast €94.2m in FY22 (up from €88.1m). Loss allowances offset the strong increase in operating income, translating into Q222 group net profit of €9.4m (€20.7m in Q221).

Valuation: Trading at only 0.23x FY22e P/BV

Our fair value estimate for PCB now stands at €10.60 per share (versus €10.00 previously), implying upside potential of c 200%. Assuming a potential default by ProCredit Bank Ukraine, we arrive at a fair value of €9.40 per share. Consequently, we believe that investors overreacted to the risks for PCB associated with the outbreak of the war in Ukraine.

Q222 results: Modest profit despite further provisions in Ukraine

PCB reported a net profit of €9.4m in Q222 (€20.7m in Q221), as the 24.1% y-o-y increase in operating income to €82.5m (excluding provisions for credit losses) was offset by higher loss allowances at €21.7m (versus a minor positive P&L impact of €0.9m from loss allowances in Q221). The vast majority (c €21.2m in Q222) of these provisions are related to PCB’s operations in Ukraine (the company also booked €35.3m in loss allowances in Q122). Excluding ProCredit Bank Ukraine, PCB’s net profit would have been €42.0m in H122 (up 64% y-o-y, with a positive contribution from all local banks), implying an annualised ROE of 9.5% (close to PCB’s reaffirmed mid-term target of 10%) versus 6.5% for PCB excluding Ukraine in H121.

Exhibit 1: Q222 results highlights

€m, unless otherwise stated

Q222

Q221

y-o-y change

H122

H121

y-o-y change

Net interest income

64.7

53.9

20.0%

124.8

103.2

21.0%

Net interest margin (%, annualised)

3.1

2.9

27bp

3.0

2.8

21bp

Expenses for loss allowances

21.7

(0.9)

N/M

57.3

2.7

N/M

Cost of risk (annualised, bp)

141

(6)

148bp

188

10

178bp

Net fee and commission income

13.7

12.1

12.7%

26.3

24.1

9.1%

Pre-tax profit

10.4

24.8

-58.0%

6.6

43.3

-84.7%

Net income

9.4

20.7

-54.6%

7.7

36.4

-78.8%

CIR (%)

61.0

64.0

-301bp

60.1

64.4

-431bp

CET-1 ratio (%)

13.7

13.7

0pp

13.7

13.7

0pp

Gross loan portfolio growth (% q-o-q)

4.4

4.5

-0.1pp

6.2

7.7

-1.4pp

Customer deposits growth (% q-o-q)

4.1

0.0

4.1pp

3.6

2.5

1.1pp

Source: ProCredit Holding, Edison Investment Research

NII up 20% y-o-y on higher NIM and loan book growth

PCB’s NII increased by a solid 20% to €64.7m in Q222, driven by a combination of higher NIM (3.1% in Q222 versus 2.9% in Q221) and continued robust loan book growth of 4.4% q-o-q in Q222, bringing the growth between end-2021 and end-June 2022 to 6.2% (4.7% if adjusted for foreign exchange (fx) changes) and y-o-y growth to 11.3%. Meanwhile, net fee and commission income rose by 12.7% y-o-y to €13.7m in Q222, assisted by the continued increase in the client base and in volumes (most notably in the transaction and credit card business).

PCB’s NIM benefitted from stable lending margins, an increase in base rates across several of the company’s countries of operations and a higher share of sight deposits and FlexSave deposits (up 2.1pp y-o-y to 71%). Overall, in Q222 customer deposits increased by 4.1% q-o-q and 14.3% y-o-y. All loan categories contributed to the loan portfolio growth, but the major driver was working capital loans with maturities of up to three years (c 52% of Q222 growth, according to our calculations) as clients funded their additional working capital requirements arising from high inflation and supply chain bottlenecks (which encouraged SMEs to build up larger inventories). Green loans were up c 4.4% in Q222, with their share in the total loan book broadly unchanged versus the end-March 2022 figure of 19.1% (close to PCB’s mid-term target of 20%).

Growth in Eastern Europe was largely due to fx effects, but we note that this was in part due to the Ukrainian hryvnia (UAH) being pegged to US dollar since the start of the Russian invasion, coupled with the US dollar appreciation versus the euro. Here, we note that the Ukrainian Central Bank devalued the hryvnia by 25% versus the US dollar in July 2022. Some additional positive fx impact in Q222 came from the appreciation of the Georgian lari. Almost all new loans in Ukraine in Q222 (€69m) were loans to agricultural clients utilising state and European Bank for Reconstruction and Development guarantees.

CIR improved to 61.0% in Q222 from 64.0% in Q221

PCB made further progress on its efforts to bringing its CIR below 60%, in line with its mid-term target. The company’s CIR reached 61.0% in Q222, down 3pp y-o-y, as growth in its operating income outpaced the 11.7% y-o-y rise in personnel expenses to €23.6m and broadly in line with the 24.8% y-o-y increase in administrative expenses to €26.7m. We note that the latter includes €2.9m of one-off legal, advisory and audit fees related to the war in Ukraine, adjusted for which the growth in administrative expenses was 11.2% y-o-y in Q222. Moreover, PCB’s net other operating income in Q222 contained a €1.9m extraordinary income from derivatives and a €0.8m negative impact related to a full write-down of goodwill in Ukraine. Adjusted for all the above one-off items, PCB’s CIR stood at 58.3% in Q222, according to our calculations. Finally, PCB’s net other operating income in the second quarter of the year included seasonally higher deposit insurance contributions, amounting to €1.5m.

Cost of risk burdened by provisions in Ukraine

PCB’s high annualised cost of risk of 188bp in H122 (and 141bp annualised in Q222 alone) primarily reflects stage transfers within the Ukrainian portfolio, with Stage 2 loans representing approximately 35% of the local loan book and Stage 3 (credit-impaired) loans 4.8% at end-June 2022 (resulting in the group share of credit-impaired loans increasing to 2.6% vs 2.3% at end-March 2022 and end-2021). Despite the nationwide credit moratorium currently in place, PCB classifies loans with no repayments (neither interest nor principal) as credit impaired. At present, over 70% of Ukrainian customers make their planned interest payments, while more than 20% also make their planned principal repayments.

As a result, 10% of the Ukrainian loan portfolio was covered by provisions at end-June 2022 (excluding guarantees and collateral), with the Stage 3 loans coverage ratio now standing at 55.6%. PCB’s provisioning at end-June 2022 includes €30.1m of management overlays, of which €13.7m is attributable to a higher loss given default (LGD) assumption in Ukraine (PCB extrapolated the LGD of its Donetsk portfolio in 2014–15 to the entire portfolio in Ukraine). The remaining €16.4m accounts for potential macro headwinds outside of Ukraine. Management highlighted that PCB’s cumulative cost of risk related to Ukraine was at the upper end of the provisioning level of local peers (12.2% annualised cost of risk in H122 based on local regulatory reporting versus 6.2–14.6% for a set of undisclosed comparable companies). Excluding Ukraine, the cost of risk was marginal at €0.8m or 3bp in Q222 and the share of credit-impaired loans declined slightly.

Retaining a robust capital buffer with a CET-1 ratio of 13.7%

The group’s capital base remained solid with a CET-1 ratio of 13.7% at end-June 2022 (14.1% at end-2021), well above the regulatory requirement of 8.2%. The increase from 13.4% at end-March 2022 was largely due to the recognition of Q421 profits and the reversal of dividend accruals related to 2021 earnings (the general meeting of shareholders accepted PCB’s proposal not to distribute a dividend for 2021 in response to the outbreak of the war). The CET-1 ratio at end-June 2022 does not reflect Q222 profits or the adjustment to the official hryvnia exchange rate (see above), though management expects the latter will have a minimal negative impact (3bp). PCB’s leverage ratio was 9.7% at end-June 2022.

ProCredit Bank Ukraine’s CET-1 ratio at end-June 2022 was 4pp above the regulatory requirement (which we understand is 7.0% at present). As discussed in our previous note, while the credit losses of the Ukrainian bank may at some stage lead to a decline in its CET-1 ratio below the regulatory requirement, we note that the National Bank of Ukraine stated that in these instances it will allow banks to continue to operate so they can gradually rebuild their capital buffers. PCB considers the risk of a default by ProCredit Bank Ukraine is low. Still, it recently proposed to its lenders a change in the cross-default clauses of its bearer bonds, registered bonds, promissory notes and a senior loan of an aggregate value of €289.5m. If agreed, the change would exclude ProCredit Bank Ukraine from the list of PCB’s material subsidiaries (from 1 July 2022 for two years), whose default is subject to special termination rights to investors. In exchange for agreeing to this exclusion, investors would receive a fee of 50bp pa. We understand that investors have until 22 August to accept the offer and subsequently the company will likely update the market with this respect. Fitch recently highlighted that the change in debt terms would have no impact on PCB’s credit rating (its Long-Term Issuer Credit Rating is BBB with a stable outlook). Moreover, Fitch believes that even a failure to receive consent would not result in a material increase of default risk for PCB.

Forecast revisions

Minor changes to our PCB forecasts include higher loss allowances for the Eastern Europe segment in FY22e (€85.9m vs €75.7m previously), largely offset by lower credit loss provisions in South Eastern Europe (€5.2m vs €10.0m previously) and some slight upward revisions to our group net interest income and net fee and commission income forecasts. Management continues to expect a significant decrease in PCB’s ROE in 2022 versus the prior year (we forecast an ROE at 2.7% in FY22e vs 9.7% in FY21). It is now guiding to a CIR of 60–63% in 2022 (vs 64.4% in 2021), based on the strong efficiency improvements in H122 (we have factored in 63.0% vs 63.6% previously). Moreover, PCB expects the group loan book to increase at a high-single digit percentage rate in FY22 (after adjusting for currency effects), compared with our estimate of 8.6% (including a positive fx impact at c 0.7pp). We note that management intends to prioritise the growth in customer deposit and enhancing its NIM over loan book growth on the near term. Finally, management anticipates a CET-1 and leverage ratio of around 13.0% and 9.0% in FY22e, respectively. Our CET-1 forecast for FY22e is somewhat higher at 13.5% (14.1% at end-2021).

Management confirmed its mid-term guidance of a c 10% ROE (which we expect to be reached in c FY24–25e) and a CIR below 60% (we assume that PCB will gradually approach the 60% mark between now and FY26e). In terms of loan book growth, the company expects an annual loan portfolio growth rate in the mid- to upper-single digit percentage range. We have conservatively factored in 3.0% growth in FY23e (due to the recessionary environment) followed by 9.1% in FY24e and c 10% in FY25e and FY26e.

Exhibit 2: Forecast revisions

 

2021

2022e

2023e

 €m, unless otherwise stated

Actual

Old

New

Change

growth y-o-y

Old

New

Change

growth y-o-y

Net interest income

222.0

251.3

254.7

1.4%

14.7%

278.1

279.5

0.5%

9.8%

Net interest margin (%, annualised)

2.9

3.0

3.0

0.1 pp

0.1 pp

3.1

3.2

0 pp

0 pp

Expenses for loss allowances

6.5

88.1

94.2

6.8%

NM

26.3

26.6

1.1%

-71.8%

Cost of risk (annualised in bp)

12

142

152

10 bp

NM

40

41

1 bp

-112 bp

Net fee and commission income

50.9

53.3

55.8

4.6%

9.7%

56.3

59.0

4.8%

5.8%

Pre-tax profit

94.5

25.5

25.0

-1.9%

-73.6%

98.0

98.9

0.9%

295.5%

Net income

79.6

22.9

23.4

2.0%

-70.6%

82.5

83.6

1.4%

257.5%

CET1 ratio (%)

14.1

13.2

13.5

0.3 pp

-0.6 pp

13.0

13.5

0.5 pp

0 pp

Total capital ratio (%)

15.3

14.1

14.4

0.3 pp

-0.9 pp

13.9

14.4

0.5 pp

-0.1 pp

CIR (%)

64.2

63.6

63.0

-0.6 pp

-1.2 pp

63.6

63.0

-0.6 pp

0 pp

Gross loan portfolio

5,924.4

6,478.6

6,431.3

-0.7%

8.6%

6,669.8

6,622.0

-0.7%

3.0%

Net loan portfolio

5,793.0

6,271.5

6,211.4

-1.0%

7.2%

6,481.7

6,427.9

-0.8%

3.5%

Customer deposits

5,542.3

6,043.7

5,964.8

-1.3%

7.6%

6,444.5

6,267.7

-2.7%

5.1%

Source: ProCredit Holding, Edison Investment Research

Regression lines based on FY22e and FY23e P/BV and ROE indicators for PCB’s peers imply a P/BV (for PCB’s sustainable return on tangible equity of 10%) at 0.71x (see Exhibits 3 and 4), which is slightly ahead of the 0.66x in our previous note. As a result, we have assumed a fair value multiple of 0.74x (0.72x previously), which is the average of the 0.77x multiple derived from our capital asset pricing model and the regression analysis (see our previous note for details). This implies a fair value per PCB share of €10.60 (versus the current share price of €3.48). Here we acknowledge that the peer group is quite scattered across the P/BV-ROE map, making the regression line less reliable. We believe this may be due to a number of non-financial factors, such as political risk perceived by investors.

Exhibit 3: P/BV versus ROE – PCB’s peers (2022e)

Exhibit 4: P/BV versus ROE – PCB’s peers (2023e)

Source: Refinitiv consensus at 17 August 2022

Source: Refinitiv consensus at 17 August 2022

Exhibit 3: P/BV versus ROE – PCB’s peers (2022e)

Source: Refinitiv consensus at 17 August 2022

Exhibit 4: P/BV versus ROE – PCB’s peers (2023e)

Source: Refinitiv consensus at 17 August 2022

Exhibit 3: Financial summary

YE December, in €000’s unless otherwise stated

2018

2019

2020

2021

2022e

2023e

2024e

2025e

2026e

Income Statement

 

 

 

 

 

 

 

 

 

Net interest income

186,235

194,533

201,561

222,021

254,669

279,523

289,825

308,151

333,235

Net fee and commission income

52,172

51,972

47,380

50,855

55,763

59,013

62,716

66,696

70,893

Operating income

240,678

249,275

252,114

281,881

321,818

341,045

358,752

382,515

413,493

Operating expenses

167,866

175,737

171,430

180,859

202,666

215,605

226,755

238,319

250,478

Loss allowances (-)

(4,714)

(3,327)

28,600

6,490

94,158

26,581

16,826

16,427

18,293

PBT

77,526

76,865

52,084

94,532

24,994

98,859

115,171

127,769

144,722

Net profit after tax

54,477

54,304

41,395

79,641

23,394

83,639

97,320

108,286

122,749

Reported EPS (€)

0.90

0.89

0.70

1.35

0.40

1.42

1.65

1.84

2.08

DPS (€)

0.30

0.00

0.53

0.00

0.00

0.47

0.55

0.61

0.69

Balance Sheet

 

 

 

 

 

 

 

 

 

Cash and balances at Central Banks

963,714

1,081,723

1,405,349

1,545,523

1,541,651

1,709,801

1,784,698

1,891,047

2,001,791

Loans and advances to banks

211,592

320,737

236,519

252,649

252,649

252,649

252,649

252,649

252,649

Investment securities

297,308

378,281

336,476

410,400

361,152

361,152

361,152

361,152

361,152

Loans and advances to customers

4,267,829

4,690,961

5,131,582

5,792,966

6,211,416

6,427,921

7,052,380

7,762,445

8,548,413

Property, plant and equipment and investment properties

130,153

138,407

140,744

137,536

142,501

142,501

142,501

142,501

142,501

Intangible assets

22,191

20,345

19,316

18,411

17,668

17,668

17,668

17,668

17,668

Other assets

73,396

67,106

59,315

58,416

78,898

70,001

78,898

70,001

78,898

Total assets

5,966,184

6,697,560

7,329,301

8,215,901

8,605,935

8,981,692

9,689,946

10,497,462

11,403,072

Liabilities to banks

1,014,182

1,079,271

1,235,763

1,313,666

1,313,666

1,300,529

1,404,572

1,460,755

1,533,792

Liabilities to customers

3,825,938

4,333,436

4,898,897

5,542,251

5,964,754

6,267,712

6,802,483

7,477,971

8,223,889

Debt securities

206,212

343,727

266,858

353,221

276,990

276,990

276,990

276,990

276,990

Subordinated debt

143,140

87,198

84,974

87,390

88,913

88,913

88,913

88,913

88,913

Other liabilities

33,076

50,436

63,080

63,059

66,340

66,340

66,340

66,340

66,340

Total liabilities

5,222,549

5,894,068

6,549,573

7,359,587

7,710,663

8,000,484

8,639,298

9,370,969

10,189,925

Total shareholders' equity

743,634

803,492

779,728

856,314

895,272

981,208

1,050,648

1,126,493

1,213,147

BVPS

12.5

13.5

13.2

14.5

15.2

16.7

17.8

19.1

20.6

TNAV per share

12.1

13.1

12.9

14.2

14.9

16.4

17.5

18.8

20.3

Ratios

 

 

 

 

 

 

 

 

 

NIM

3.30%

3.10%

2.90%

2.90%

3.03%

3.18%

3.10%

3.05%

3.04%

Costs/Income

69.7%

70.5%

68.0%

64.2%

63.0%

63.2%

63.2%

62.3%

60.6%

ROAE

7.6%

6.9%

5.3%

9.7%

2.7%

8.9%

9.6%

9.9%

10.5%

CET1 Ratio

14.4%

14.1%

13.3%

14.1%

13.5%

13.5%

13.0%

12.8%

12.7%

Tier 1 ratio

14.4%

14.1%

13.3%

14.1%

13.5%

13.5%

13.0%

12.8%

12.7%

Capital adequacy ratio

17.2%

15.7%

14.7%

15.3%

14.4%

14.4%

13.7%

13.5%

13.3%

Payout ratio (%)

33.3%

0.0%*

33.3%*

0.0%

0.0%

33.3%

33.3%

33.3%

33.3%

Customer loans/Total assets

73.6%

71.6%

71.7%

72.1%

74.7%

73.7%

74.5%

75.7%

76.6%

Loans/Deposits

114.8%

110.7%

107.3%

107.0%

107.8%

105.7%

106.2%

106.2%

106.3%

Source: Company data, Edison Investment Research. Note: *In 2021, PCB distributed 1/3 of the accumulated profits from 2019 and 2020.

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The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by ProCredit Holding and prepared and issued by Edison, in consideration of a fee payable by ProCredit Holding. Edison Investment Research standard fees are £60,000 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2022 Edison Investment Research Limited (Edison).

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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