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Largest portfolio holding delivers

Heliad Equity Partners 1 September 2020 Update
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Heliad Equity Partners

Largest portfolio holding delivers

Investment companies

Scale research report - Update

1 September 2020

Price

€7.1

Market cap

€71m

Share price graph

Share details

Code

HPBK

Listing

Deutsche Börse Scale

Shares in issue

9.87m

NAV per share at end June 2020

€10.74

Business description

Heliad Equity Partners is a Germany-based investment company that aims to invest in disruptive companies from the DACH region operating in the technology (fintech, IT security and blockchain) and digital brands sectors. The company is undergoing a restructuring of its legacy investment portfolio.

Bull

Shares trade at a substantial discount to net asset value.

Partial exit from flatex in July 2020 provides additional liquidity.

Solid business performance of its largest portfolio holding (flatex).

Bear

Portfolio concentration remains high despite recent partial exit from flatex.

Early-stage investments are inherently higher risk.

Management fee of 2.5% paid to a company owned by the main shareholder.

Analyst

Milosz Papst

+44 (0) 20 3077 5700

Heliad’s H120 results largely reflect the strong share price performance of its main holding, the online broker flatex, which was up 91% in H120. Heliad executed a profitable partial exit from flatex post period end, generating gross cash proceeds of c €21.5m. Meanwhile, management continues to reposition its portfolio, with further reduction of its exposure to listed holdings in 2020 to date.

H120 results driven by largest holding

Heliad’s net income increased to €32.4m in H120 from €0.4m a year earlier, assisted by a c €40.6m gain from revaluation, largely driven by the 91% share price appreciation of flatex during this period. This compensated for write-downs on listed and unlisted holdings of c €6.7m in H120. NAV per share reached €10.74, visibly up vs €7.39 at end December 2019, driven again by a revaluation of its stake in flatex.

Partial exit from flatex with a notable uplift

On 2 July 2020, Heliad announced that it had sold 0.5m shares in flatex as part of a private placement to institutional investors, translating into proceeds of c €21.5m for the company. This implies a disposal price of around €43 per share (vs flatex’s closing price of €45.65 on the day before the announcement), which we estimate represents a notable uplift to the average cost of acquisition of €7.3 per share. As part of the transaction, Heliad agreed to a 90-day lock-up on its remaining 7.3% stake in flatex.

Valuation: Trading at a considerable discount to NAV

Following a c 73% share price increase between end FY19 and 27 August 2020, Heliad still trades at a 33% discount to its last reported NAV of €10.74 per share. We estimate that the discount to NAV narrows to c 23% after adjusting Heliad’s NAV for changes in flatex’s share price performance since June 2020 (down 14%), cash generated from the partial exit from flatex (not adjusted for transaction fees) and a performance fee that the deal alone would trigger (c €3.6m according to our estimates).

Historical financials

Year
end

Net revenue
(€m)

PBT
(€m)

EPS
(€)

P/E
(x)

NAV/share
(€)

P/NAV
(x)

12/16

(16.6)

22.2

(2.3)

N/A

8.4

0.9

12/17

43.1

39.6

4.0

1.8

12.2

0.6

12/18

(50.6)

(57.6)

(5.7)

N/A

6.2

1.2

12/19

14.5

11.7

1.1

6.2

7.4

1.0

Source: Heliad Equity Partners. Note: P/NAV based on current share price.

Edison Investment Research provides qualitative research coverage on companies in the Deutsche Börse Scale segment in accordance with section 36 subsection 3 of the General Terms and Conditions of Deutsche Börse AG for the Regulated Unofficial Market (Freiverkehr) on Frankfurter Wertpapierbörse (as of 1 March 2017). Two to three research reports will be produced per year. Research reports do not contain Edison analyst financial forecasts.

flatex performance supports H120 results

Heliad’s net income reached a notable €32.4m in H120, compared with just €0.4m a year earlier. This was supported by a €40.6m gain from revaluation (vs €4.9m in H119), largely driven by the 91% share price appreciation of flatex, Heliad’s largest investment, which represented c 83% of its NAV at end H120. These write-ups more than offset a €5.9m write-down on unlisted investments (Tiani Spirit based on our conversation with management) and a €0.7m write-down on listed stocks, with the latter mainly affected by the c 25% share price decline of MagForce during the period. In H120, Heliad recorded a net disposal gain of €0.3m after it sold all its shares in the listed Sleepz, reduced its exposure to the listed MagForce and Elumeo and disposed of its stake in the non-listed holding AlphaPet (see our previous update note for more details). Heliad’s NAV was €106m at end-June 2020, which translated into a NAV per share of €10.74, up from €7.39 at end December 2019, largely driven by flatex’s share price appreciation in the period. At end June 2020, Heliad’s listed investments (ie stocks) were valued at €90.2m (representing c 85% of its NAV), the value of its unlisted holdings was €11.6m (11%) and cash stood at €3.3m (3%).

Exhibit 1: H120 results highlights

€000s, unless otherwise stated

H120

H119

y-o-y change

Income from the sale of financial assets

4,676

5,109

(8.5%)

Other operating income

13

-

N/M

Gains from revaluation

40,565

4,908

N/M

Retirement of financial assets

(4,399)

(5,275)

(16.6%)

Amortisation of intangible assets

-

(2)

N/M

Gains from investments and securities

-

11

N/M

Expenses from the fair value assessment

(6,744)

(3,270)

N/M

Financial revenue

180

354

(49.2%)

Financial expenses

-

(7)

(100.0%)

Other operating expenses

(1,281)

(1,391)

(7.9%)

Pre-tax profit

33,009

438

N/M

Income taxes

(660)

(52)

N/M

Net result for the period

32,350

386

N/M

Average number of shares (diluted)

9,873

9,873

0.0%

EPS (diluted, €)

3.28

0.04

N/M

Source: Heliad Equity Partners

Notably, Heliad sold part of its stake in flatex post-period end, which we describe in more detail above. We note that in line with IFRS accounting treatment, Heliad will likely record a small loss from the transaction because the value uplift is already taken into account through flatex’s share price appreciation in H120 and the disposal price of c €43 per share was slightly below the closing price of €45.75 at the reporting date. By contrast, in HGB accounts it will post a significant gain (c €17.9m, according to our estimates) as share price appreciation is not reflected in the H120 profit. We also note that the deal may trigger a performance fee of c €3.6m (ie 20% of realised net earnings).

Repositioning away from listed holdings continues

The recent disposals are in line with Heliad’s strategic refocus on non-listed holdings. Its portfolio currently includes stakes in listed flatex, MagForce and Elumeo and five non-listed companies: Springlane (a retailer of kitchenware), Spaze (a technology-based platform for influencer marketing), Libify (a specialist in manufacturing and sales of mobile emergency calls, locating, and tracking systems), Muume (a platform for digital services for daily consumption and purchasing processes on smartphones) and Tiani Spirit (a specialist in standardised and secure exchange of data, and of healthcare information in particular). Management highlights that its focus is on maximising the value of the existing portfolio while exploring opportunistic investments across different industries, with a potentially stronger emphasis on the fintech, IT security, blockchain and digital brand sectors. Having said that, no new investments were conducted in H120, nor has the company provided any details on the future deployment of the cash proceeds from its partial exit from flatex yet. We note that Heliad may use these funds for investments or distribute them in the form of dividends.

flatex remains the largest portfolio holding and Heliad’s 7.3% stake in the company was valued at c €56.3m on 27 August 2020, according to our estimates. flatex’s shares have declined by c 14% since end-June 2020 following a c 91% share price appreciation between end December 2019 and end June 2020. flatex released its preliminary H120 figures in July 2020, posting 55% y-o-y growth in sales to €100m and EBITDA of €43m, up 116% y-o-y. It also completed the acquisition of a 100% stake in DEGIRO in July 2020 and expects to uplist to the SDAX in Q420.

Valuation

Heliad assesses its own NAV per share based on the valuation of listed and unlisted holdings. Its shares currently trade at a 33% discount to its last published NAV of €10.74 as of end June 2020. Although it further reduced its exposure to listed stocks (Sleepz, MagForce, Elumeo) in H120 and executed a major partial exit from flatex in July 2020, its discount to the recently published quarterly NAV to a significant extent reflects movements in the valuation of flatex (we understand that MagForce and Elumeo represented less than 2% of Heliad’s NAV as of end H120).

We estimate that Heliad’s 7.3% stake in flatex was valued at c €56.3m at 27 August 2020 (vs c €88.3m at end June 2020 when it had a 9.9% stake in the company). If we assume that Heliad received c €21.5m in cash from the partial exit from flatex (although the actual net proceeds were likely lower due to the payment of transaction fees), the price movements of other listed stocks have a negligible impact on its NAV and all other things remain unchanged vs end June 2020, we arrive at an underlying discount to Heliad’s last reported NAV of c 26%. The discount to NAV might partially reflect the portfolio transformation (which is still early stage) to unlisted holdings, which are inherently less transparent and have lower liquidity than listed companies.

We believe that investors may also discount the performance fee that Heliad is likely to pay to its investment manager, Heliad Management, based on the FY20 results. We estimate that the partial exit from flatex alone implies a performance fee of c €3.6m (or c €0.36 per share) for the manager. However, when we take this into account in our NAV adjustments, Heliad’s discount to last reported NAV narrows only slightly to c 23%.

Exhibit 2: Heliad’s NAV and share price performance

Exhibit 3: Heliad’s discount to NAV

Source: Heliad Equity Partners

Source: Heliad Equity Partners, Edison Investment Research

Exhibit 2: Heliad’s NAV and share price performance

Source: Heliad Equity Partners

Exhibit 3: Heliad’s discount to NAV

Source: Heliad Equity Partners, Edison Investment Research

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Frankfurt +49 (0)69 78 8076 960

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United States of America

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General disclaimer and copyright

Any Information, data, analysis and opinions contained in this report do not constitute investment advice by Deutsche Börse AG or the Frankfurter Wertpapierbörse. Any investment decision should be solely based on a securities offering document or another document containing all information required to make such an investment decision, including risk factors. This report has been commissioned by Deutsche Börse AG and prepared and issued by Edison for publication globally.

Edison Investment Research standard fees are £49,500 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 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “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.

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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

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