On track to reach its mid-term guidance

ProCredit Holding 19 November 2021 Update
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ProCredit Holding

On track to reach its mid-term guidance

Q321 results

Banks

19 November 2021

Price

€8.00

Market cap

€471m

Total assets (€bn) at end September 2021

7.9

Shares in issue

58.9m

Free float

35.7%

Code

PCZ

Primary exchange

Frankfurt Prime Standard

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

1.3

5.8

33.3

Rel (local)

(3.4)

4.2

8.5

52-week high/low

€9.26

€5.90

Business description

ProCredit 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. At end-September 2021, the group’s total assets stood at €7.9bn.

Next events

Deutsches Eigenkapitalforum

22–24 November 2021

EGM

8 December 2021

Analysts

Milosz Papst

+44 (0)20 3077 5700

Anna Dziadkowiec

+44 (0)20 3077 5700

ProCredit Holding is a research client of Edison Investment Research Limited

We now expect ProCredit Holding (PCB) to reach its mid-term ROE target of 10% in FY21, driven by continued scaling of its operations through consistent loan book expansion (we forecast 13% growth in FY21) while maintaining the high credit quality of its portfolio. The group has also benefitted from some recent net interest margin (NIM) expansion. Despite the above, it continues to trade at a significant discount to book value (current FY21 P/BV at 0.6x), which we find hard to justify.

Year end

Net interest income (€m)

EPS*
(€)

DPS
(€)

P/BV
(x)

P/E
(x)

ROE
(%)

Yield
(%)

12/19

194.5

0.89

0.00

0.6

9.0

6.9

N/A

12/20

201.6

0.70

0.53

0.6

11.4

5.3

6.6

12/21e

219.5

1.37

0.46

0.6

5.8

9.9

5.7

12/22e

245.8

1.44

0.48

0.5

5.6

9.6

6.0

Note: ProCredit Holding, Edison Investment Research. Note: *From total operations.

Q321 net income more than doubling versus Q320

PCB delivered a net income of €25.7m in Q321 compared to €11.7m in Q320, translating into an annualised ROE of 12.3% (10.1% based on 9M21 profit). Its loan portfolio growth was 2.6% q-o-q in Q321, bringing the growth in the year to date (ytd) to 10.4%. This was accompanied by a 5.0% q-o-q increase in deposits (7.6% ytd). PCB’s cost of risk was 4bp in Q321 (vs 42bp in Q320) and the share of credit impaired loans remained stable versus end-2020 at 2.6%. It is also worth noting PCB’s NIM improved to 3.0% in Q321 (vs 2.9% in Q320) and management considers this sustainable. We believe PCB’s NIM may be supported if central bank interest rate hikes continue in a number of countries where PCB is present.

New mid-term guidance to be published next year

PCB aims at solidifying its ROE at around 10% in the near term through realising scaling effects from its tailored digital platform and lean branch structure, improving performance of weaker banks, the completion of key technology projects and conservative approach to credit risk management. Management is reviewing its mid-term targets and will communicate a new mid-term guidance on the publication of FY21 results in March 2022.

Valuation: Offering a c 84% upside potential

We have increased our fair value estimate of PCB to €14.70 per share from €12.60 previously on the back of higher FY21 forecasts, which translate into PCB’s tangible book value forecast of €14.2 per share (versus €13.8 previously), and higher average FY21e P/BV of its peers (1.3x vs 1.2x previously). While we acknowledge the additional country risk associated with PCB’s markets of operations (including lower COVID-19 vaccination rates vs Western Europe), we believe PCB’s progress since the completion of its business streamlining in FY19 deserves to be recognized through its shares being traded closer to its book value.

Q321 results: Ytd ROE in line with mid-term target

In Q321, PCB more than doubled its net income year-on-year to €25.7m versus €11.7m in Q320 and has beaten our expectations of €16.9m. This translates into an annualised ROE of 12.3% in Q321, bringing the ytd figure to 10.1% versus 5.6% in 9M20 and management’s FY21 guidance of 8.0–9.5%. We also note the 9M21 ROE reached the company’s mid-term target of c 10%.

Exhibit 1: Q321 highlights

€m, unless otherwise stated

Q321

Q321e

% diff

Q320

y-o-y change

Net interest income

58.2

55.2

5.4%

50.8

14.6%

NIM (annualised)

3.0%

2.9%

12 bp

2.9%

9 bp

Expenses for loss allowances

0.5

3.6

-85.6%

5.4

-90.7%

Cost of risk (annualised, bp)

4

26

-22 bp

42

-38 bp

Net fee and commission income

13.0

12.4

4.3%

12.1

7.4%

Pre-tax profit

30.3

20.5

47.9%

15.8

91.8%

Net income

25.7

16.9

51.8%

11.7

119.7%

CIR

59.0%

65.2%

-616 bp

66.7%

-766 bp

CET-1 ratio

13.8%

13.7%

7 bp

14.1%

-0.3 pp

Gross loan portfolio growth (q-o-q)

2.6%

2.9%

-33 bp

3.0%

-0.4 pp

Customer deposits growth (q-o-q)

5.0%

3.5%

150 bp

6.1%

-1.1 pp

Source: Company accounts, Edison Investment Research

Continuing to scale its business

PCB’s gross loan book increased by 2.6% q-o-q in Q321 (vs our estimate of 2.9%), bringing the 9M21 growth to 10.4%, which is already in line with management’s full-year guidance at c 10%. Having said that, we note management’s loan book growth guidance excludes any currency impact while PCB’s ytd growth has been partially assisted by positive fx effects (which added €100m to the ytd growth in loan book). According to the company, fx-adjusted growth in customer loans was 8.5% ytd, well on track to meet the full-year guidance.

Growth was supported by the performance of all PCB’s regional banks and loan categories, but particularly strong momentum was recorded in working capital loans (54% of the nominal loan book increase in Q321), as SMEs were rebuilding capacity in the aftermath of COVID-19 lockdowns. We note that in this category, PCB recognises all loans with a maturity of up to three years, although some of them may be investment loans with shorter maturity. Green loans represented 19.0% of PCB’s total loan book, which is already close to the mid-term target of 20%. At the same time, customer deposits went up by 5.0% q-o-q in Q321 (vs our estimate of 3.5%) with ytd growth at 7.6%. As a consequence of PCB’s loan book slightly outgrowing the increase in deposits, PCB’s loan to deposit ratio was down to 90.8% versus 93.2% at end-2020.

Maintaining good credit quality

The company continues to report a low annualised cost of risk at 4bp in Q321 (we assumed 26bp) versus 42bp in Q320, with expenses for loss allowances at €0.5m (Q320: 5.4m), largely attributable to growth in loan book. As a result, the annualised cost of risk stood at 8bp in 9M21. PCB also continues to report good recoveries of written-off loans at €2.6m. The share of credit impaired loans in total loan book were stable versus end-2020 at 2.6%, while the share of Stage 2 loans declined by 0.8pp to 4.1%. Management underlined that loan restructuring activities reduced significantly since mid-Q221 and the repayment level in the restructured portfolio is solid.

Importantly, PCB’s loss provisions in 9M21 did not reflect any update to macroeconomic parameters despite the improving outlook in South-Eastern and Eastern Europe. The International Monetary Fund has raised its 2021 GDP forecast for emerging and developing Europe to 6.0% in its latest World Economic Outlook (published in October 2021) from 4.9% previously (July 2021, after an upward revision from 4.6% in April 2021) with the 2022 forecast unchanged at 3.6% (3.9% in April 2021). However, given the risks around supply chain disruption, producer price inflation and rapidly increasing numbers of local COVID-19 cases (especially in the context of the share of fully vaccinated people at c 20–40% vs the EU average at c 65%), PCB’s management does not expect any positive impact on the cost of risk from the revision of macroeconomic parameters in its FY21 results (while previously it estimated the potential provision release at c €4m).

NIM up on growth in loan volume and low-margin deposits

Net interest income was €58.2m (5.4% ahead of our estimate of €55.2m and up 14.6% y-o-y) with a NIM at 3.0% (vs our estimate at 2.9% and 2.9% reported in Q320). PCB’s margin has been assisted by increasing loan volume (largely offsetting the base-rate cuts from last year) coupled with growing share of sight deposits and FlexSave deposits (69% at end-September 2021 vs 68% at end-June 2021). PCB’s net fee and commission income improved 7.4% y-o-y to €13.0m (4.3% above our estimate of €12.4m), mostly on the back of further recovery in money transfer and credit/debit card volumes. As a result, it has returned to pre-pandemic levels (Q319 at €13.1m), while its gross fee and commission income exceeded Q319 levels. The latter was assisted by the expanding customer base and higher fees and commissions generated on existing clients.

Cost income ratio below 60%, capital base remains sound

PCB’s cost income ratio (CIR) declined to 59.0% from 66.7% in Q320, translating into 62.4% in 9M21 (vs 66.5% in 9M20). This remains in line with FY21 guidance of c 65% (management now says CIR is ‘likely to not exceed 65%’). This was assisted by positive margin development and scaling effects from PCB’s loan book growth. As a result, the increase in income before loss allowances more than offset the moderate 5.0% y-o-y increase in operating costs to €44.4m. PCB’s CIR continues to be supported by relatively limited travel expenses translating into c €2.6m savings vs 9M19 (or 1.3pp of PCB’s CIR in 9M21). At the same time, personnel expenses increased 6.2% y-o-y in Q321, partially as a result of an annual salary review completed in July 2021. Following a revised verdict of the Serbian Supreme Court (in favour of banks), class actions against Serbian banks (including PCB Serbia) related to loan processing fees have come to a halt. Consequently, PCB has not accrued any further provisions since June 2021.

The group’s capital base remains robust with a CET-1 ratio of 13.8% (up from 13.3% at end-2020) and total capital ratio of 15.0% (vs 14.7% at end-2020). The CET-1 ratio includes PCB’s FY20 and H121 net profit, while the proposed dividend payment of €0.35 per share (€20.6m) was already fully deducted (reducing the ratio by 38bp). Moreover, one-third of the H121 net profit was deducted for the anticipated dividend for FY21. The CET-1 ratio was assisted by positive fx developments (which added 50bp), primarily from the appreciation of the Ukrainian Hryvnia and Georgian Lari. PCB has already paid a dividend of €0.18 per share this year and the management has proposed a further payout of €0.35 per share, which will be subject to shareholder vote at the next EGM in December 2021. The total dividend would be in line with PCB’s policy of distributing one-third of profits to shareholders through dividends (this time based on combined FY19 and FY20 profits given, now payment was made last year).

Sustainable business model supported by impact orientation

PCB maintains its market position as an impact-oriented bank focused on building long-term relationships with well-established and innovative SMEs, which we believe has helped it navigate the pandemic well and keep credit default rates below the average level seen in its countries of operations. Its green loan portfolio grew at a CAGR of 26% between FY17 and FY20 and by c 12% ytd to €1.1bn in 9M21 (representing c 19% of PCB’s loan book). These include loans to fund energy efficiency projects that reduce energy consumption by at least 20% (these made up 57% of the green loan portfolio at end-Q321) and renewable energy (20%) and other green investments (23%), including investments leading to the prevention of air, water and soil pollution, waste management, as well as organic agriculture and production. Environmental, social and governance assessment is central to all lending decisions in the group, supported by strict internal standards and experienced staff. PCB does not provide any meaningful consumer lending, which management highlights is the key differentiator from other banks in the countries where it is active.

PCB continues to promote staff development (eg it provides over 100 hours of training per employee per year on average) and equitable pay (eg management board salaries are less than four times the average salary in all banks and it does not pay contractual bonuses). Management highlights the diversity within PCB with 30+ nationalities in its German head office and c 50% of the group’s senior and middle management being women. Noteworthy, PCB’s internal environmental measures led to a 46% y-o-y reduction in the group’s CO2 emissions in 2020 and it continued investing in its own photovoltaic pharms, electric vehicles and efficient buildings. PCB provides a comprehensive overview of its sustainability-oriented strategy in its 2020 Impact Report.

Outlook and forecast revisions

Management maintained its FY21 guidance of c 10% loan portfolio growth, 8.0–9.5% ROE (expected to be at the upper end of the range), c 65% CIR, >13% CET1 and >9% leverage ratio, as well as a dividend payout at one-third of group profits. As discussed above, PCB’s guidance in terms of loan book growth is at constant exchange rates, while the group recently benefitted from appreciation of local currencies versus euro as discussed above. As a result, we have pencilled in an FY21 loan book growth of 13.0% assuming end-2021 fx rates in line with current levels. PCB has seen an encouraging margin development recently and we note that a number of local central banks have raised their rates in Q321 and Q421 so far (including Georgia, Ukraine, Romania and Moldova). That said, we understand competitive pressure remains high and management expects its NIM to remain close to the recently reported level (3.0% in Q321) in the near term. Consequently, we have slightly increased our NIM assumptions to 2.9–3.0% in the coming years (vs our previous assumptions of 2.8–2.9%).

Management intends to solidify PCB’s ROE of c 10% in FY22 and FY23 through further scaling effects from its tailored digital platform (developed by its in-house IT company Quipu) and lean branch structure; improving performance of weaker banks; completing its key technology projects (tech stack centralisation and digitalisation of all non-financial transactions); and continued low cost of risk on the back of its conservative approach to credit risk management. During the capital markets day in October, management highlighted that it sees room to further improve the ratio of loan book per employee in some of its regional banks, where it stands below the group average of c €2.3m per employee compared to more than €3.0m for some group banks such as ProCredit Bank Bulgaria. We forecast PCB’s ROE at 9.9% in FY21 and 9.6% in FY22, with the small decline next year primarily attributable to our higher cost of risk assumptions versus FY21. We note PCB is already quite close to achieving its mid-term targets of CIR below 60% and ROE at 10%, while its loan book growth at constant currency has been in line with the 10% pa target. Management is reviewing PCB’s targets and plans to release a new mid-term guidance on the publication of FY21 results in March 2022.

Exhibit 2: Forecast revisions

€m, unless otherwise stated

2020

2021e

2022e

 

Actual

Old

New

Change

Growth y-o-y

Old

New

Change

Growth y-o-y

Net interest income

201.6

215.3

219.5

2.0%

8.9%

235.9

245.8

4.2%

12.0%

NIM (annualised)

2.9%

2.8%

2.9%

0 pp

0 pp

2.8%

2.9%

0.1 pp

0.1 pp

Expenses for loss allowances

28.6

10.8

4.5

-58.6%

N/M

20.9

14.2

-32.2%

218.1%

Cost of risk (annualised in bp)

57

19

8

-11 bp

N/M

33

23

-11 bp

15 bp

Net fee and commission income

47.4

49.6

50.4

1.6%

6.4%

56.4

56.3

-0.3%

11.6%

Pre-tax profit

52.1

84.3

96.6

14.6%

85.5%

91.4

103.5

13.2%

7.1%

Net income

41.4

70.0

81.0

15.7%

95.6%

75.5

85.1

12.7%

5.1%

CET1 ratio

13.3%

13.2%

13.5%

0.3 pp

0.3 pp

13.0%

13.3%

0.3 pp

-0.2 pp

Total Capital Ratio (TCR)

14.7%

14.5%

14.7%

0.3 pp

0 pp

14.1%

14.4%

0.3 pp

-0.3 pp

CIR

68.0%

64.9%

63.5%

-1.3 pp

-4.5 pp

62.5%

61.9%

-0.6 pp

-1.6 pp

Gross loan portfolio

5,254.3

5,973.3

5,937.7

-0.6%

13.0%

6,562.0

6,522.3

-0.6%

9.8%

Net loan portfolio

5,131.6

5,842.2

5,805.1

-0.6%

13.1%

6,418.5

6,383.0

-0.6%

10.0%

Customer deposits

4,898.9

5,377.9

5,416.7

0.7%

10.6%

5,886.5

5,938.3

0.9%

9.6%

Source: ProCredit, Edison Investment Research

We expect PCB to post a Q421e net income of €18.9m vs Q420 at €8.0m, supported by a combination of higher net interest income (on the back of loan book growth and slightly higher NIM); visibly lower cost of risk; improving net fee and commission income; and the lack of significant one-offs similar to those the company booked in Q420.

Exhibit 3: Summary of Q421 results forecasts

€m, unless otherwise stated

Q421e

Q420

y-o-y change

Net interest income

58.1

50.8

14.4%

NIM (annualised)

2.9%

2.8%

11 bp

Expenses for loss allowances

1.2

7.5

-83.9%

Cost of risk (annualised, bp)

9

57

-85.0%

Net fee and commission income

13.4

12.7

5.5%

Pre-tax profit

23.1

10.2

125.8%

Net income

18.9

8.0

136.7%

CIR

66.6%

72.3%

-576 bp

CET-1 ratio

13.5%

13.3%

28 bp

Gross loan portfolio growth (q-o-q)

2.3%

0.9%

131 bp

Customer deposits growth (q-o-q)

2.7%

3.8%

-110 bp

Source: ProCredit, Edison Investment Research

Valuation

Based on our FY21 forecasts for PCB, it is trading at the lowest FY21e P/BV ratio in its peer group at c 0.6x (versus the peer average of 1.3x based on Refinitiv consensus). Although our forecast FY21 ROE for PCB of 9.9% is below the peer group average (14.3%), we note it is broadly in line with two of its closest peers, Erste Group (10.1%) and Raiffeisen Bank International (9.3%), which trade at a FY21e P/BV ratio of 1.1x and 0.7x, respectively. The ytd share price performance for these two peers stands at c 61% and 70%, respectively (including a strong rally since July 2021), while PCB’s shares appreciated by a mere 7% despite the improving results (the share price has fallen since July 2021).

A regression line based on FY21 P/BV and ROE estimates for PCB (Edison) and its peers (Refinitiv) implies an FY21 P/BV ratio for PCB of 1.16x. However, the R-squared value of this regression line is very low (see Exhibit 5). A similar comparison based on actual FY20 figures (with a visibly higher R-squared, see Exhibit 4) implies an FY21e P/BV ratio of 0.94x. Given we are well into FY21, we calculate the average of the above two ratios at 1.05x and blend this with the 1.04x ratio implied by the capital asset pricing model to arrive at a fair value multiple of 1.05x, which we use in our implied price to tangible book value method. Together with the upward revision of our FY21 forecasts highlighted above, this translates into our new PCB fair value estimate of €14.70 per share compared with €12.60 previously, representing a c 84% upside potential to PCB’s current share price. Despite the additional risk associated with PCB’s countries of operation (which we reflected in a higher blended equity risk premium of 8.7%), we believe PCB’s shares should not trade at a discount to book value given the level of profitability.

Exhibit 4: P/BV vs ROE – ProCredit and peers (2020)

Exhibit 5: P/BV vs ROE – ProCredit and peers (2021)

Source: ProCredit, Edison Investment Research, Refinitiv

Source: ProCredit, Edison Investment Research forecasts for PCB, Refinitiv consensus at 19 November 2021 for peers

Exhibit 4: P/BV vs ROE – ProCredit and peers (2020)

Source: ProCredit, Edison Investment Research, Refinitiv

Exhibit 5: P/BV vs ROE – ProCredit and peers (2021)

Source: ProCredit, Edison Investment Research forecasts for PCB, Refinitiv consensus at 19 November 2021 for peers

Exhibit 6: Financial summary

Year ending 31 December, €000s

2018

2019

2020

2021e

2022e

2023e

2024e

2025e

INCOME STATEMENT

 

 

 

 

 

 

 

 

Net interest income

186,235

194,533

201,561

219,524

245,832

265,503

284,383

308,665

Net fee and commission income

52,172

51,972

47,380

50,424

56,292

61,557

65,653

69,291

Loss allowances (-)

(4,714)

(3,327)

28,600

4,454

14,170

11,212

10,071

8,258

Operating income

245,394

252,603

223,514

272,666

294,643

324,023

348,705

379,075

Operating expenses

167,866

175,737

171,430

176,029

191,145

203,075

217,316

232,593

PBT

77,528

76,866

52,085

96,637

103,498

120,948

131,389

146,482

Net profit after tax

54,479

54,305

41,396

80,966

85,094

99,982

108,753

121,501

Reported EPS

0.90

0.89

0.70

1.37

1.44

1.70

1.85

2.06

DPS

0.30

0.00

0.53

0.46

0.48

0.57

0.62

0.69

BALANCE SHEET

 

 

 

 

 

 

 

 

Cash and balances at Central Banks

963,714

1,081,723

1,405,349

1,389,931

1,461,267

1,439,598

1,413,949

1,425,046

Loans and advances to banks

211,592

320,737

236,519

257,595

257,595

257,595

262,747

268,002

Investment securities

297,308

378,281

336,476

390,215

398,019

405,980

405,980

405,980

Loans and advances to customers

4,267,829

4,690,961

5,131,582

5,805,073

6,383,009

7,021,880

7,732,315

8,522,526

Property, plant and equipment and investment properties

130,153

138,407

140,744

136,947

136,947

136,947

136,947

136,947

Intangible assets

22,191

20,345

19,316

19,067

19,067

19,067

19,067

19,067

Other assets

73,396

67,106

59,315

54,439

54,439

54,439

54,439

54,439

Total assets

5,966,184

6,697,560

7,329,301

8,053,268

8,710,344

9,335,506

10,025,443

10,832,007

Liabilities to banks

1,014,182

1,079,271

1,235,763

1,290,773

1,368,220

1,340,855

1,314,038

1,327,179

Liabilities to customers

3,825,938

4,333,436

4,898,897

5,416,732

5,938,256

6,519,165

7,160,494

7,868,668

Debt securities

206,212

343,727

266,858

345,698

345,698

345,698

345,698

345,698

Subordinated debt

143,140

87,198

84,974

86,722

86,722

86,722

86,722

86,722

Other liabilities

33,076

50,436

63,080

58,788

58,788

58,788

58,788

58,788

Total liabilities

5,222,549

5,894,068

6,549,573

7,198,713

7,797,684

8,351,229

8,965,740

9,687,054

Total shareholders' equity

743,634

803,492

779,728

854,554

912,660

984,277

1,059,703

1,144,953

BVPS

12.5

13.5

13.2

14.5

15.5

16.7

18.0

19.4

TNAV per share

12.1

13.1

12.9

14.2

15.2

16.4

17.7

19.1

Ratios

 

 

 

 

 

 

 

 

NIM

3.30%

3.10%

2.90%

2.85%

2.93%

2.94%

2.94%

2.96%

Costs/Income

69.7%

70.5%

68.0%

63.5%

61.9%

60.6%

60.6%

60.0%

ROAE

7.6%

6.9%

5.3%

9.9%

9.6%

10.5%

10.6%

11.0%

CET1 Ratio

14.4%

14.1%

13.3%

13.5%

13.3%

13.2%

13.3%

13.3%

Tier 1 ratio

14.4%

14.1%

13.3%

13.5%

13.3%

13.2%

13.3%

13.3%

Capital adequacy ratio

17.2%

15.7%

14.7%

14.7%

14.4%

14.2%

14.2%

14.1%

Payout ratio (%)

33.3%

0.0%

33.3%

33.3%

33.3%

33.3%

33.3%

33.3%

Customer loans/Total assets

73.6%

71.6%

71.7%

73.7%

74.9%

76.8%

78.7%

80.2%

Loans/Deposits

114.8%

110.7%

107.3%

109.6%

109.8%

110.0%

110.1%

110.3%

Source: Company data, Edison Investment Research

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 2021 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

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 2021 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

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