Focused DACH tech investor

Heliad Equity Partners 12 June 2017 Initiation
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Heliad Equity Partners

Focused DACH tech investor

Initiation of coverage

Investment companies

12 June 2017

Price

€6.89

Market cap

€68m

AUM €84.5m

NAV per share (€) at 31 March 2017

8.92

Discount to NAV

23.1%

Shares in issue

9.87m

Free float

40.2%

Code

HPBK

Primary exchange

Frankfurt

Sector

Private equity

Benchmark

N/A

Share price/discount performance

Three-year performance vs index

52-week high/low

€7.40

€5.23

NAV high/low

€8.92

€8.31

Gearing (at 31 December 2016)

Gross

2.6%

Net cash

2.5%

Analysts

Julian Roberts

+44 (0)20 3077 5748

Helena Coles

+44 (0)20 3077 5700

Heliad Equity Partners is a research client of Edison Investment Research Limited

Heliad Equity Partners (Heliad) is a DACH-focused (Germany, Austria and Switzerland) closed-ended fund investing in the tech, e-commerce and lifestyle sectors. It is managed by Heliad Management GmbH, a company wholly owned by Heliad’s largest shareholder, FinLab (A7A). Stakes in listed tech companies FinTech Group (FTK) and MagForce (MF6) account for 69% of the portfolio value and their value currently exceeds Heliad’s market cap, having appreciated 36% and 82%, respectively, in 2017 to date. The performance of these holdings and the diversification offered by Heliad’s 12 other investments may make it an attractive way to access the German tech, e-commerce and lifestyle sectors at a discount.

12 months ending

Total share price return (%)

Total NAV return (%)

LPX Europe (%)

LPX Europe NAV (%)

DAX 30 (%)

LPX Direct NAV (%)

30/05/13

(9.7)

11.5

49.6

13.6

33.3

18.3

30/05/14

107.2

27.1

14.7

5.2

19.1

4.2

30/05/15

42.1

15.7

10.8

2.9

14.8

8.9

30/05/16

24.2

9.9

9.2

9.3

(10.1)

12.2

30/05/17

2.0

(4.5)

37.9

33.8

22.9

28.3

Source: Thomson Datastream, Bloomberg. Discrete total return performance in Euros to last reported NAV date.

Q117 NAV growth expected to continue

Following a difficult 2016, when the share prices of Heliad’s two biggest holdings fell, Q117 has seen a reversal, leading to 17% NAV growth in Q1 from €8.43 to €8.92 per share. This has come on the back of good results from FinTech and progress on the roll-out of MagForce’s cancer nanotherapy. Heliad’s other investments appear to have interesting potential for development, particularly in the e-commerce space. The recent acquisition of a 9.1% stake in bmp Holding, a listed company operating in a similar market to an existing investment, may provide both synergies and potential for a merger with the existing investment, Cubitabo.

Simple strategy and diversification to come

Heliad invests in relatively small companies in Germany’s growing tech and e-commerce sector, both private companies and listed small-caps, which management believes are undervalued. It looks to invest in companies with revenues of under €50m but with growth potential. The management fee is 2.5% of NAV and a 20% carry on realised investments. Heliad expects to make around four new investments in the next 12 months following the bmp investment in May, equity funding for which was provided by FinLab’s biggest shareholder, BF Holding.

Valuation: Big discount on listed assets

Heliad reported NAV per share of €8.92 at 31 March, when the value of its shares in the four listed investments it held on that date was €5.05 per share. Those four investments have since risen in value to €6.81 per share, only slightly less than the current share price. Including the investment in bmp Holdings made on 8 May, the listed portfolio is worth €6.67 per share, 3% below the current price, implying that the market ascribes no value to the private investments. This is explained in more detail in the valuation section on page 12.

Exhibit 1: Company at a glance

Investment objective and fund background

Recent developments

Heliad seeks to provide a sustainable dividend return to shareholders averaging 3% in the long term, by investing in listed and unlisted technology, e-commerce and lifestyle companies in German-speaking countries. The company will pay lower, or potentially no, dividend in some years in order to make this sustainable without disposing of investments at inopportune times. It is managed by Heliad Management GmbH, a wholly-owned subsidiary of FinLab AG.

2 June 2017: the portfolio company AlphaPet Ventures completed a €13m funding round from family offices and from Deutsche Handelsbank. Funds will be use to further develop the business and win market share.

11 May: Heliad completes capital increase of €2m from BF Holding GmbH.

8 May 2017: Heliad subscribed for all of bmp Holding AG’s capital increase, buying 690,000 shares (9.09%) at €1.35 per share, an investment of €0.93m. bmp is an online retailer of sleep products and the investment is complementary to Heliad’s stake in Cubitabo, operator of BettenRiese.de, which has a similar business model.

Forthcoming

Capital structure

Fund details

AGM

22 June 2017

FY16 net expense ratio

N/A

Group

Heliad Equity Partners

Quarterly results

29 September 2017

Net debt (€m)

2.1

Manager

Team managed

Year end

31 December

Annual mgmt fee

2.5% of NAV

Address

Grüneburgweg 18, 60322 Frankfurt am Main, Deutschland

Dividend paid

€0.15 proposed

Performance fee

20% carry

Launch date

19/11/2004

Company life

Perpetual

Phone

+49 69 719 159 65-0

Continuation vote

N/A

Loan facilities

€2.6m undrawn, €2.1m drawn.

Website

www.heliad.com

Dividend (financial years)

3, 5 and 10-year annualised total return performance

Portfolio split by investment type (as at 31 December 2016)

Portfolio exposure by sector (as at 31 December 2016)

Shareholder base (as at 31 December 2016)

Equity investments by company (as at 31 March 2017, listed companies priced at 16 May 2017)

Source: Edison Investment Research, Bloomberg, Thomson, company data.

Investments focused by sector and geography

Heliad invests in companies operating in the internet and technology, e-commerce and lifestyle sectors, based in German-speaking countries, which have the potential to transform or dominate their sector through a new technology or approach. It aims to invest in relatively small companies, with annual sales of €1-50m, and will look at both private and public equity opportunities, taking a buy-and-build approach, rather than a passive one. In this way it seeks to assemble a portfolio of investments, which would likely be too small for institutional investors and, through its own listing on the Deutsche Börse’s Scale Segment, make them accessible to other investors. It is notable that its investments in listed companies take the form of private placements to establish a major stake in a company, and may be complementary to its private investments, potentially offering an exit via a merger.

Heliad Equity Partners, the listed entity and the limited partner (LP) in each investment, is managed by Heliad Management GmbH, the general partner (GP). Heliad Management is 100% owned by FinLab, another German company listed in Frankfurt. The management company receives a 2.5% annual management fee as well as a performance fee of 20% of realised net earnings (the same as 20% of net profit under German GAAP). FinLab also owns 47% of the shares in Heliad Equity Partners. Exhibit 2 shows the corporate structure. FinLab’s two biggest shareholders, with 49% and 31% of the outstanding shares respectively, are BF Holding and Apeiron Investment Group, which in turn are owned by Bernd Förtsch and Christian Angermayer, leading German entrepreneurs. The access to deals afforded by the connections of these shareholders differentiates Heliad from other private equity (PE) houses. Before examining the portfolio in more detail we will look at the investment strategy.

Exhibit 2: Heliad Equity Partners organisation chart

Source: Heliad Equity Partners data as of 31 December 2016, with later shares of acquisitions as per regulatory news releases. *via ownership of MT Holding GmbH.

Strategy

Heliad focuses on German-speaking Europe (DACH), where it has a wide network. The region is one of the most economically important on the continent: Germany is the world’s fourth-biggest economy by GDP and mid-sized firms such as those Heliad looks at (the Mittelstand) are one of its cornerstones, and may be undervalued as a result of their size and because illiquidity makes them inaccessible to institutional investors. The German economy remains healthy, with the IMF expecting German GDP to grow 1.6% in 2017 and 1.5% in 2018.

The sectors Heliad addresses are all those which are expected to see market growth, where products and services can be scalable and where innovation, either through technology or the way it is used, can give companies the ability to dominate their markets. We will look at the markets in which Heliad’s investments operate in more detail later, but Germany provides a potentially fertile market for e-commerce and fintech in particular. The World Bank estimated that 87.6% of Germans used the internet in 2015 (vs 74.6% in the US and 92.0% in the UK), but the Ecommerce Foundation (a worldwide non-profit organisation) estimated that in 2015 business-to-consumer e-commerce in Germany only had a 1.97% share of GDP, vs 6.12% and 3.32% in the UK and US and a global average of 3.11%, implying that there remains room for growth.

Heliad’s primary investment criterion is the quality of the management team or the company’s ability to bring in a new one. It will also give managerial assistance where necessary: for example, Thomas Hanke spent a year working at FinTech Group as head of business development and investments before returning to Heliad as CEO in April 2016. The typical investment horizon is between two and four years, although Heliad does not have a time limit. The aim is to achieve a cash multiple of 3-5x in that timespan. Heliad will consider various methods of exit from its investment, including IPO and trade sales. Selling shares in listed entities has been the favoured method so far, with the Deutsche Entertainment (DEAG) and FinTech stakes being reduced over time. The recent acquisition of a stake in bmp may provide a way to exit BettenRiese too in due course: both operate in the sleep product markets and bmp is listed, so a merger between the two might be a way of both creating value, if there are synergies, and making it possible to realise that value.

Portfolio

As shown in Exhibit 1, the portfolio is dominated by FinTech Group, and the technology and internet sector comprises nearly three-quarters of investments by value (Exhibit 1). Management is working to diversify the portfolio, but the relative scale of the FinTech holding and recent good performances of FinTech and MagForce mean they are likely to comprise the majority of the portfolio for some time. We understand that management expects to make four or five new investments in the next 12 months and would expect Heliad to continue to sell down its stake in DEAG. Below we look at the portfolio in more detail, explaining the investment case for each holding.

Exhibit 3: Value and recent income statement data for Heliad’s listed investments

€m

FinTech

MagForce

DEAG

MAX 21

bmp

2015

2016

2015

2016

2015

2016

2015

2016

2015

2016

Revenue

68.0

87.6

2.6

1.2

200.4

184.8

N/A

0.0

5.7

15.0

EBITDA

18.4

30.6

(4.4)

(6.7)

(25.7)

1.8

N/A

0.0

(1.8)

(1.8)

EBIT

40.9

30.3

(4.5)

(7)

13.4

5.9

N/A

0.0

0.8

(0.8)

Net income

(1.7)

8.4

(1.5)

(7)

(1.7)

8.4

N/A

(6.4)

(2.8)

(9.6)

EPS

(0.11)

0.50

(0.06)

(0.27)

(1.82)

(0.22)

N/A

(0.52)

(0.42)

(1.38)

Market cap

290.8

201.7

45.3

27.3

12.1

Value of Heliad stake

49.1

10.8

3.5

1.4

1.1

Source: Bloomberg data as at 9 June 2017. Note: Bloomberg uses adjustments, which may differ from company reported accounts.

Detailed financial statements are not available for the unlisted constituents of the portfolio because Heliad consolidates them, either because it holds a controlling interest, or because they are held through HEP Beteiligungs, but we show basic income statement data for the listed investments in Exhibit 3 as well as the value of Heliad’s holding in each company. We would draw attention to the fact that Heliad’s listed investments have a current value of €65.9m, just 3% less than Heliad’s own market capitalisation of €68.1m. It may be that a discount is being applied to reflect the 2.5% annual fee and potential 20% ‘carry’ payable to the management company and for Heliad Equity Partners’ own costs, but the discount on the listed investments seems high: Heliad’s total liabilities are only €3.8m (at 31 December 2016), giving a net value for the listed assets alone of €62.1m. This does not seem to ascribe any value to the unlisted holdings, which Heliad reports make up c 25% of portfolio value. We explain each business briefly below.

FinTech Group (16.87% owned, market cap c €300m)

FinTech has itself consolidated several other businesses and is now reorganising itself into tech and finance entities. It reports under two segments and is in the process of reorganising its divisions so that the operational structure matches the structure of its financial reporting more closely.

The securities trading and financial services division (€19.4m of revenue, €11.9m EBITDA in 2016) comprises flatex, an online broker, and ViTrade, a specialist trading platform for very active investors. flatex is the fastest-growing online broker in Europe and had net new client growth of 25,000 in 2016, bringing the total to c 175,000. It has customers in Germany and Austria and management aims for their number to exceed 200,000 by the end of 2017. Both businesses provide non-advice securities transactions to well-informed investors. Securities covered include all financial instruments tradeable on German exchanges as well as numerous international ones, over-the-counter (OTC) direct trading, FX and CFDs. Both operate online and have no branches, charge competitive fees (with no subscription costs and a maximum of €5.90 per trade OTC and €5.00 for exchange-traded instruments, flatex is the cheapest online broking platform available to German retail investors). Other differentiating factors include the range of trading partners (19) available to its customers and the fact that they can also use flatex to invest in time deposits or overnight money. flatex can also make loans to its customers. FinTech also has a mobile payments business called kesh and is winding up a second online broker called brokerport.

The transaction processing and white-label banking division (€70.8m of revenue, €28.3m EBITDA in 2016) is made up of XCOM and its fully owned subsidiary biw (Bank für Investments und Wertpapiere). These earn R&D revenues for developing financial technology for their clients, execute securities transactions and provide business process outsourcing to over 250 financial service companies and banks (notable clients include Commerzbank and Deutsche Bank, for which FinTech runs LOX, the exchange-traded products over-the-counter system with 3bn price feeds and 50,000 transactions a day). The two entities also provide services to flatex and ViTrade, including securities settlement. biw is a full-service bank in its own right and holds over €1bn in customer deposits. XCOM provides software, hosting services, complete specialised banking processes, deposits, brokerage, payment transactions, cards, loans, mobile payments and peer-to-peer transactions as well as cash logistics, ATM operation and settlement. All services and products are highly secure, while maintaining flexibility, as they are fully integrated into clients’ existing systems and easy to use. As well as established financial services providers, the clientele includes start-ups needing their own systems.

Exhibit 4: FinTech Group share price performance over the last two years

Source: Bloomberg, data to 18 May 2017

FinTech is listed in Frankfurt under the ticker FTK and recent share price performance has been good, with the shares up 28% ytd (Exhibit 5), partly driven by encouraging FY16 results published in April. FinTech has not paid any dividends to date, but Heliad has realised €7.7m of its investment. The current value of Heliad’s remaining stake is €52.7m, meaning that the cash multiple on the original investment (including realised returns), which was 2.4x at 31 December, is now likely to be c 3x. Separately, under the Scale scheme, we will be initiating on FinTech in due course, but will not be providing forecasts.

MagForce AG (5.34% owned, market cap c €200m)

MagForce is a nanotechnology company listed in Frankfurt under the ticker MF6. It has developed a medical device called NanoTherm to treat cancer. Put simply, the technology involves injecting tumours with magenetic nanoparticles, which can then be excited (heated) remotely by a NanoActivator to destroy the tumour while minimising the impact on surrounding healthy tissue. We have recently re-initiated coverage of the company and our report includes detailed forecasts. MagForce is executing its strategy to drive uptake and acceptance (in the US and Europe) of NanoTherm. In Germany, MagForce has six centres (three utilised, c 50 patients to date) commercially capable of treating glioblastoma (GBM) patients. To accelerate uptake of NanoTherm treatment in Europe, we expect MagForce to look to expand from Germany into other countries over six to 18 months. In the US, its subsidiary MagForce USA is in talks with the FDA to initiate a planned clinical trial in prostate cancer patients (potential launch in 2018). Data are expected in 2018 (potential launch soon after).

Again, recent positive newsflow has helped the share price (up 73% in 2017) and the successful execution of management’s strategy could be expected to see further gains. Please see our initiation note for a more detailed outlook and explanation of sensitivities (link in paragraph above).

Exhibit 5: MagForce share price performance over the last two years

Source: Bloomberg, data to 18 May 2017

Deutsche Entertainment (7.70% owned, market cap c €50m)

Deutsche Entertainment (DEAG) has been listed in Frankfurt under the ticker ERMK since 1998 and was founded in 1978. It operates in the entertainment industry, organising concerts, Christmas fairs and other events in Germany, Austria, Switzerland and the UK, promoting recorded music and selling tickets to other events. It hosts around 2,000 events per year and sells c 5m tickets. It has exited an unprofitable festival business, which led to a loss of €26.2m in 2016 (previously reported at €17.8m). DEAG has 10 subsidiaries operating in the live touring industry, including ACT Artist Agency in Germany (currently running a tour of Germany by Riverdance), KBK (running the 2017 German tours for Status Quo, Alice Cooper and Chris de Burgh) and Raymond Gubbay (specialising in ballet, opera and classical music events and with strong links to the Royal Opera House and the Royal Albert Hall). The entertainment services division includes myticket.de, a ticketing website; Verescon, which designs sets and entertainment spaces; Handwerker Promotion (which promotes rock music events) and 13 other subsidiaries.

Heliad has recently been selling down its position in DEAG because the cash multiple has been in the target zone of three to five times the original investment and the shares have been in the portfolio for longer than the usual holding period. We believe that Heliad did not participate in DEAG’s recent €2m capital increase which will allow it to invest in a UK ticketing business.

MAX 21 (5.27% owned, market cap c €25m)

MAX 21 has been listed in Frankfurt since 2006 under the ticker MA1. It holds positions in mail management, IT security and cloud services. Its holdings include Binect, KeyIdentity, Necdis and GFN. All are at early stages of development and Heliad management does not expect Max 21 to report a profit in 2017, although revenues are projected to be over €10m and the FY16 consolidated loss of €6.4m is expected to be substantially reduced.

bmp Holding (9.09% owned, market cap c €13m)

In May 2017 Heliad invested €930k to acquire its stake in bmp Holding, an e-commerce company listed in Frankfurt and Warsaw (BTBA and BMPAG). bmp has three subsidiaries, which sell sleep products such as beds and mattresses online: sleepz, Matratzen Union Gruppe and Grafenfels. Heliad and bmp are exploring the extent to which BettenRiese could be incorporated in bmp. It is expected that the fragmented sleep products industry may well see consolidation in future, and that e-commerce will take market share from bricks-and-mortar retailers. Heliad aims for its sleep investments to emulate Eve, a successful UK company which management says is on a considerably higher valuation with similar financial metrics to bmp.

Exhibit 6: Private equity holdings

Name

Sector

Holding

Description

Cubitabo

Lifestyle/e-commerce

41.10%

Cubitabo operates the online sleep product sites BettenRiese.de and buddysleep.de. The latter sells the company’s own-brand mattresses and both are aimed at design-oriented customers. The German mattress market is reported to be growing rapidly and Cubitabo aims to increase its market share. There may be scope for it to be combined with bmp Holding.

Stapp

Tech

54.84%

Stapp helps celebrities to monetise their social media presence by developing individual apps that connect to major social media. It has collaborated with German reality television stars to create apps allowing their fans to try out their ‘looks’ and purchase the relevant products. Product providers can enter co-operation agreements to place products directly.

AlphaPet

e-commerce

7.77%*

AlphaPet is one of Germany’s leading online retailers of premium pet foods. It was formed in 2016 through the merger of ePetWorld and Pets Premium and operates three specialist online shops. Its branded products are now available over the counter in more than 100 specialist shops too. As noted above, in early June 2017 AlphaPet completed a €13m fundraising round to further develop the business.

Springlane

e-commerce

17.79%

Springlane is a leading retailer of kitchenware, winning an award for being the best online shop in Germany in 2016. The company was founded in 2012 with seed capital from Heliad, among others, and has conducted further rounds since, the last being €11m in 2014. It has a strong business intelligence and content marketing system to help grow sales and has recently reached several milestones in terms of online traffic: the July 2016 issue of its magazine had over one million downloads and on 30 December the website exceeded 100,000 hits in a day. It regularly has nearly 10 million pins on Pinterest per day.

Tiani Spirit

Tech

18.61%

Tiani Spirit specialises in the standardised and secure exchange of data, and of healthcare information in particular. It has 17 partners, including Cisco Systems, Virgin Media, Swiss Post and Austrian Health. Its technology enables Cisco’s Medical Data Exchange Solution (MDES) to connect previously incompatible systems from multiple institutions, allowing them to share data quickly, accurately and securely.

My Better Life

Lifestyle

10-20%

My Better Life runs an online life coaching service through which users have access to advice from eight experts in various areas of everyday life. Advice is tailored to individuals’ needs and is scientifically based. The company also offers corporate services to help improve employee motivation, reduce stress, improve leadership and contribute to a happier workforce.

Libify

Tech

8.12%

Libify makes and sells portable emergency call and location systems designed for use by outdoor sport enthusiasts, the elderly and unwell. Its devices can all send an alert signal and location, either to a pre-arranged telephone number or the emergency services. It also produces tracking devices for animals such as dogs and horses that may stray. Its devices are on sale in 18 countries and have been used successfully in Germany, Austria and Switzerland over 20,000 times.

MUUME

Tech/e-commerce

5.89%

MUUME is a private Swiss company whose technology allows consumers to make purchases and place orders at multiple retailers using a single app on their smartphone. It links shopping applications to bank and payment services and provides added value to consumers via coupon and loyalty programmes. The company is working to attract closed-user groups, which should make it attractive to merchants, and to sign more merchants up to its network.

Source: Company data. *This figure is Heliad’s stake before the recent capital increase. No new information is available yet.

Market overview

The German PE market is among the largest in Europe, with close to 200 private equity firms based in the country and German institutions having an average allocation to PE of €535m according to Preqin. There were 120 PE-backed buyout deals in 2015, with an aggregate value of €20bn, the third biggest market in Europe by value after the UK and France (second only to the UK in number). The 240 PE-backed venture capital deals in 2015 totalled €1.7bn, the second highest number and value in Europe. The market is dominated by deals in the mid-cap range, defined as €50m to €500m, meaning that Heliad operates in something of a niche below that level. The industrial sector has seen the most activity in recent years but information technology has been second every year since 2011, followed by healthcare and consumer discretionary, meaning that Heliad’s sector focus is more mainstream. As measured by the LPX Index, European PE performance has compared well with other asset classes in Germany (Exhibit 7), meaning that it has attracted considerable amounts of capital (Exhibit 8).

Exhibit 7: Major asset class performance since 2010

Exhibit 8: Germany-focused PE funds raised

Source: Bloomberg

Source: Preqin

Exhibit 7: Major asset class performance since 2010

Source: Bloomberg

Exhibit 8: Germany-focused PE funds raised

Source: Preqin

The resources being committed to private equity have been pushing asset prices up. Although data for 2016 are not available, in its Private Equity trend Report 2016, PwC reported that the average year one EBITDA multiple paid for PE deals in Europe over €100m was 11.4x in 2015, up from 10.9x in 2014. Against that background, Heliad’s focus on smaller deals that do not attract the attention of larger PE funds and institutions may differentiate it, as does its network, as mentioned above. Heliad’s network and focus may therefore mitigate some of the effects of strong investment interest in PE, while benefiting from the fact that the PE market is well developed and commonly explored as a funding option by businesses seeking investment. We will now look at the markets in which Heliad’s subsidiary companies operate.

Fintech

Germany is a hub of financial technology, with a large number of fintech companies that benefit from the skilled workforce, a tradition of entrepreneurship, access to capital and a large and relatively wealthy domestic market. The German Federal Ministry of Finance commissioned a report on the industry, which was published in October 2016 and identified 346 active fintech businesses in Germany in the crowd-lending, crowd-investing, social trading, wealth management and robo-advice sectors. These companies had assets under management or administration (AUMA) of €2.2bn in 2015 and several subsectors have seen triple-digit compound annual growth between 2007 and 2015 (the period covered by the report). The market being addressed by those companies was estimated to be close to €1.7tn (€1.3tn in wealth management and €380bn in financing). The authors forecast growth in total market volume from €2.2bn in 2015 to €58bn in 2020, €97bn in 2025 and €148bn in 2035, a compound annual growth rate of 23%. Market penetration is already high, with 87% of financial institutions reporting that they co-operate with a fintech company and intend to continue to do so in future. The appeal of fintech is its potential to earn significant returns by capturing greater market share from more traditional financial services provision, improving the service offering and reducing the cost of providing it. What is more, incumbent providers appear to be embracing the trend. Although this may mean greater competition from established banks, brokers etc, it also allows potential collaboration and may make exits easier should incumbents seek to consolidate the sector.

E-commerce

Similar trends to the ones supporting fintech are beneficial to e-commerce. Internet penetration in Germany is second only to the UK in Europe, and a growing proportion of internet users are also internet shoppers (82.4% in 2015 vs 77.0% in 2012 according to the Ecommerce Foundation), magnifying the increasing reach of the internet. Germany is top of the Logistics Performance Index compiled by Händlerbund, an online trade association, which bodes well for the delivery of goods ordered online.

Exhibit 9: Internet users, % of population

Exhibit 10: E-commerce consumer sales in Germany

Source: World Bank

Source: Ecommerce Foundation, BEVH, excludes private sales via sites such as eBay.

Exhibit 9: Internet users, % of population

Source: World Bank

Exhibit 10: E-commerce consumer sales in Germany

Source: Ecommerce Foundation, BEVH, excludes private sales via sites such as eBay.

Including private sales through auction sites and VAT, the Bundesverband E-Commerce und Versandhandel (BEVH) estimates that online consumer sales in 2016 totalled €72.4bn, which is still well below the UK total of c €154.7bn estimated by IMRG and Capgemini, despite the slightly larger online population in Germany. This implies that there is still considerable scope for growth in e-commerce volumes in Germany. The structure of the market may change as well: in Germany, the online share of sales of non-physical goods and services such as flights, music and hotel stays is already high (71%, 69% and 63%), albeit still lower than in the UK (84%, 89% and 79% respectively), whereas online sales of, for example, household appliances accounted for 53% of UK sales in 2016, vs 29% in Germany. This implies that there is possible growth to come from digital sales of physical goods in Germany.

Lifestyle

There is overlap between Heliad’s exposure to the lifestyle sector and e-commerce, with its two investments in My Better Life, an online life coaching service, and DEAG, which manages live entertainment events, for which most tickets are sold online. Live music accounted for the largest share (27%) of gross value added (GVA) by the German music sector in 2014,1 the last year for which detailed statistics are available, and in the UK (from where 35% of DEAG’s revenues are derived), live music GVA grew at a compound annual rate of 11% from 2012 to 2015 (with a peak in 2014).2

Source: 2015 Music Industry Report by Professor Dr Seufert, chair of the Institute for Communication Studies at the Friedrich-Schiller-Universität Jena, commissioned by the Hamburg Senate and the Federal Ministry of Economics and Energy.

Source: Measuring Music 2016, commissioned by UK Music.

Management, organisation and corporate governance

Below we summarise the biographies and other positions of both the supervisory and management board members.

Volker Rofalski, chairman of the supervisory board, is also on the supervisory boards of Sporthouse, Bio-Gate, Demekon Entertainment, card4you, Mutares and Taishan Capital Management. He has held numerous other board positions in the past and founded TradeCross, which was sold to VEM Aktienbank in 2005. He is also an investment director at PE firm Mountain Partners.

Kai Panitzki, deputy chairman of the supervisory board, is a member of the management board of FinLab and was on the board of Börsenmedien, a company founded by Bernd Förtsch, from 2013 to 2016. Before that he was a managing director and acting partner at the leading creative media agency Scholz & Friends (part of WPP Group).

Stefan Müller, supervisory board member, is an executive manager at Börsenmedien and was a member of the management team at FinTech Group for 14 years to August 2016.

Thomas Hanke, CEO/MD of Heliad Management GmbH, holds an MBA from Julius-Maximilians-Universität Würzburg and was an investment manager at FinLab and Heliad from 2010 to 2015. From July 2015 to April 2016 he was head of business development and investments at FinTech Group before returning to Heliad Equity Partners.

The investment managers are Theo Woik and Gunter Greiner; the former is also an investment manager of FinLab. Mr Woik previously worked at ViewPoint Capital Partners from 2006 to 2014. ViewPoint specialises in growth equity and focuses on software and internet technology companies. Mr Greiner has 15 years’ experience in private equity as an investment director. They are supported by Stefan Schütze (legal and compliance) and Juan Rodriguez (CFO). The last two perform the same functions for FinLab.

Shareholders and free float

Heliad’s biggest shareholder is FinLab, which owns 47% of the outstanding shares. IFOS Internationale Fonds Service, a Liechtenstein fund operation and management business, owns 15%. BF Holding, a company controlled by Bernd Förtsch, subscribed for all of the new shares issued in the €2m capital increase on 11 May. Combined with his 49% share in FinLab, this takes Bernd Förtsch’s direct and indirect stake in Heliad to 26%. Mr Förtsch also has significant direct holdings in some of the portfolio companies, including 39.8% of FinTech Group and 9.8% of MagForce (where he was also a board member until 2014), taking his look-through stakes in those companies to 44.2% and 11.2% respectively.

Financials

As an investment company, Heliad’s financials are relatively simple. Income is either in the form of dividends (income from investments), receipts of interest from loans to subsidiaries or from cash held on deposit (although interest rates in Germany are currently negative), from selling investments or changes in their valuation. Investments in listed securities are shown at market value, and any increase in value goes through the income statement; the five unquoted venture holdings are shown at cost, in line with IAS 39.46(c). Other unquoted investments assessed at fair value through profit and loss are valued using either comparable prices for the investment or, where they exist, from prices for the company itself (for instance from a new funding round); again, changes are taken through the income statement.

Heliad had lower revenue in FY16 than in previous years, mainly because its two biggest investments, FinTech and MagForce, had poor share price performances. This not only reduced their balance sheet value, but also discouraged Heliad from realising more of its investment. As shown above, both companies’ shares have performed considerably better so far in 2017. Heliad’s unlisted investments are mainly at an early stage of development and did not compensate for the fall in the value of listed investments, resulting in a loss in FY16 after three years of profits.

Exhibit 11: Income statement

Year-end 31 December (€000s)

2012

2013

2014

2015

2016

Net revenue

17,853

26,709

23,762

29,205

(16,606)

Amortisation of intangible assets

(10,657)

(10)

0

0

(2)

Other operating expenses

(7,849)

(15,087)

(5,263)

(6,251)

(5,600)

PBT

(652)

11,612

18,499

22,954

(22,210)

Tax

(1,141)

(33)

(469)

(386)

249

Net profit

(1,794)

11,580

18,030

22,568

(21,962)

Minority interest

36

0

0

0

0

Profits attributable to shareholders of the parent

(1,830)

11,580

18,030

22,568

(21,962)

Average shares in issue

10,192,541

10,174,762

9,620,632

9,509,441

9,509,441

EPS (€)

(0.18)

1.14

1.87

2.37

(2.31)

Source: Heliad Equity Partners data. This may differ from subsidiary accounts in Exhibit 4 as previously noted.

Exhibit 12: Balance sheet

Year-end 31 December (€000s)

2012

2013

2014

2015

2016

Total non-current assets

36,407

33,082

48,081

78,025

79,135

Marketable securities

0

136

Other assets

16,537

21,295

9,914

15,530

4,167

Tax receivables

1,270

9,317

5

2

77

Cash and equivalents

30,681

8,634

23,814

9,502

129

Total current assets

48,488

39,245

33,733

25,033

4,509

Total assets

84,894

72,328

81,814

103,058

83,644

Deferred taxes

412

164

353

721

434

Long-term provisions

86

6

6

7

6

Total non-current liabilities

499

170

359

728

439

Provisions

5,954

7,612

486

212

213

Trade payables

726

43

37

52

58

Payables to credit institutions

108

3

3

0

2,190

Payables to investments

0

910

Other liabilities

24,554

101

63

63

77

Total current liabilities

31,342

7,759

590

327

3,448

Total liabilities

31,841

7,928

949

1,055

3,887

Net assets

53,053

64,400

80,866

102,003

79,757

NAV/share (€)

5.30

6.39

8.53

10.87

8.43

Source: Heliad Equity Partners data

Valuation

As explained above, Heliad assesses its own portfolio value and calculated a NAV per share of €8.92 at 31 March 2017, meaning the shares trade at a c 23% discount, well above the discount for the LPX Europe index of c 10% (although Heliad’s discount to last reported NAV has narrowed in recent weeks). Reasons may include the concentration of investments and the low free float as well as the shareholder structure. However, the recent performance of Heliad’s stakes in listed companies has exceeded Heliad’s own shares, having increased by 32% as opposed to 31% for Heliad, as illustrated in Exhibit 13. We have assumed that Heliad’s private investments and cash have not changed in value other than allowing for the capital increase conducted on 11 May (363,000 shares at €5.50 each, or €2m) and for the investment of €931,500 in bmp Holding (which has appreciated in value since it was purchased on 8 May). Meanwhile the listed investments have increased in value from €5.05 per share to €6.67 per share. So although Heliad’s shares have appreciated 32% since 31 May, from €5.23 to €6.86, narrowing the discount to reported NAV from 41% to 23%, look-through NAV per share is likely to be closer to €10.51, giving a discount to look-through NAV closer to 34%.

Exhibit 13: NAV change since 31 March 2017

Market cap on 31 March
(€)

Heliad stake
(%)

Value of Heliad stake
(€m)

Value per Heliad share (€)

Market cap on 9 June
(€)

Heliad stake
(%)

Value of Heliad stake (€m)

Value per Heliad share (€)

FinTech

210.6

16.9%

35.5

3.74

290.8

16.9%

49.1

4.97

MagForce

126.8

5.3%

6.8

0.71

201.7

5.3%

10.8

1.09

DEAG

58.9

7.7%

4.5

0.48

45.3

7.7%

3.5

0.35

MAX 21

22.2

5.2%

1.2

0.12

27.3

5.2%

1.4

0.14

bmp

18.1

0%

0.0

0.00

12.1

9.1%

1.1

0.11

Total of listed investments

48.0

5.05

65.9

6.67

Reported NAV

84.8

8.92

Implied NAV

103.7

10.51

Implied value of private investments

36.8

3.87

37.9

3.84

Source: Bloomberg, company data, Edison Investment Research. Shares in issue at 31 March: 9,509,441. Shares in issue at 9 June: 9,872,941

Sensitivities

Apart from the normal risks associated with private equity investment, including valuation risk, management risk and the ability to exit investments, Heliad is sensitive to some other factors:

Early-stage investments. Some investments are start-ups and are likely to be at a higher risk of failure than more mature companies. Those that are still loss-making are reliant on investment to fund their growth.

Concentration risk. With FinTech Group and MagForce comprising well over half of the portfolio, NAV is highly dependent on the share price performance of these two companies, which could be a risk to the upside or the downside. Concentration will increase if they continue to perform well, and management is seeking to diversify the portfolio.

Next NAV update. Given recent strong performance by listed investments, we would expect the next NAV update to show considerable gains which may be a catalyst for the shares.

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Heliad Equity Partners and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Edison is an investment research and advisory company, with offices in North America, Europe, the Middle East and AsiaPac. The heart of Edison is our world-renowned equity research platform and deep multi-sector expertise. At Edison Investment Research, our research is widely read by international investors, advisers and stakeholders. Edison Advisors leverages our core research platform to provide differentiated services including investor relations and strategic consulting. Edison is authorised and regulated by the Financial Conduct Authority. Edison Investment Research (NZ) Limited (Edison NZ) is the New Zealand subsidiary of Edison. Edison NZ is registered on the New Zealand Financial Service Providers Register (FSP number 247505) and is registered to provide wholesale and/or generic financial adviser services only. Edison Investment Research Inc (Edison US) is the US subsidiary of Edison and is regulated by the Securities and Exchange Commission. Edison Investment Research Limited (Edison Aus) [46085869] is the Australian subsidiary of Edison and is not regulated by the Australian Securities and Investment Commission. Edison Germany is a branch entity of Edison Investment Research Limited [4794244]. www.edisongroup.com

DISCLAIMER
Copyright 2017 Edison Investment Research Limited. All rights reserved. This report has been commissioned by Heliad Equity Partners and prepared and issued by Edison for publication globally. 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. Opinions contained in this report represent those of the research department of Edison at the time of publication. The securities described in the Investment Research may not be eligible for sale in all jurisdictions or to certain categories of investors. This research is issued in Australia by Edison Aus and any access to it, is intended only for "wholesale clients" within the meaning of the Australian Corporations Act. The Investment Research is distributed in the United States by Edison US to major US institutional investors only. Edison US is registered as an investment adviser with the Securities and Exchange Commission. Edison US 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. As such, Edison does not offer or provide personalised advice. We publish information about companies in which we believe our readers may be interested and this information reflects our sincere opinions. The information that we provide or that is derived from our website is not intended to be, and should not be construed in any manner whatsoever as, personalised advice. Also, our website and 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 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. This document is provided 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.
Edison has a restrictive policy relating to personal dealing. 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. Edison or its affiliates may perform services or solicit business from any of the companies mentioned in this report. The value of securities mentioned in this report can fall as well as rise and are subject to large and sudden swings. In addition it may be difficult or not possible to buy, sell or obtain accurate information about the value of securities mentioned in this report. Past performance is not necessarily a guide to future performance. 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. 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 (ie 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. To the maximum extent permitted by law, Edison, its affiliates and contractors, and their respective directors, officers and employees will not be liable for any loss or damage arising as a result of reliance being placed on any of the information contained in this report and do not guarantee the returns on investments in the products discussed in this publication. FTSE International Limited (“FTSE”) © FTSE 2017. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

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

245 Park Avenue, 39th Floor

10167, New York

US

Sydney +61 (0)2 8249 8342

Level 12, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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