business desk

Strong FY20 results backed by flatexDEGIRO

Heliad Equity Partners 8 April 2021 Update
Download PDF

Heliad Equity Partners

Strong FY20 results backed by flatexDEGIRO

Investment companies

Scale research report - Update

8 April 2021

Price

€10.4

Market cap

€102m

Share price graph

Share details

Code

HPBK

Listing

Deutsche Börse Scale

Shares in issue

9.87m

NAV per share at end-December 2020

€13.28

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.

Solid business performance of flatexDEGIRO, Heliad’s largest portfolio holding.

Ample cash for new investments.

Bear

Portfolio concentration remains high despite recent partial exit from flatexDEGIRO.

Management will not recommend paying a dividend from FY20 earnings.

Progress with portfolio transformation to unlisted holdings has been limited so far.

Analyst

Milosz Papst

+44 (0) 20 3077 5700

Heliad’s FY20 results were supported by 165% share price growth at flatexDEGIRO (formerly flatex), its largest portfolio holding, representing c 68% of NAV at end-FY20, and a partial exit from this company announced in July 2020. Liquidity was high at end-FY20 (cash at c 19% of NAV), which we believe could be used for new investments. Heliad continues to trade at a notable discount to NAV.

flatexDEGIRO delivers again

Heliad’s net income increased to €57.3m in FY20 from €11.3m in FY19, assisted by a €50.9 net revaluation gain and a €9.4m net disposal gain, both largely linked to its largest portfolio holding, flatexDEGIRO. This also drove Heliad’s NAV per share to €13.28, up c 80% y-o-y. Heliad will pay a higher management fee to Heliad Management (its investment manager) in FY21 (c €3.2m, as per our estimates) and will also be charged a performance fee on its realised gains (c €3.0m based on our discussion with management). As for FY19, Heliad Management has proposed not paying a dividend from Heliad’s FY20 earnings.

High liquidity amid portfolio repositioning

Post the management change in April 2019, Heliad announced that it will move its portfolio away from listed companies and increase exposure to non-listed holdings, with potential stronger emphasis on the fintech, IT security, blockchain and digital brand sectors. While Heliad has reduced its exposure to listed stocks in recent months (most notably to flatexDEGIRO in July 2020) and sold some of its unlisted holdings, it has not made any new investments recently. Heliad’s liquidity position was backed by the partial exit from flatexDEGIRO announced in July 2020, which boosted its share of cash in NAV to c 19% at end-FY20 (vs c 1.6% at end-FY19).

Valuation: Trading at a notable discount to NAV

Heliad is trading at a 22% discount to end-December 2020 NAV despite the fact that c 68% of its portfolio was attributable to listed company flatexDEGIRO at end-FY20 and its high cash position. We believe the relatively wide discount may be at least partially linked to the management and performance fees paid to Heliad Management and a somewhat protracted process of increasing its exposure to unlisted holdings since the management change in April 2019. After adjusting Heliad’s NAV for the changes in flatexDEGIRO’s share price since end-December 2020 to 6 April 2021 (+26%), we estimate the discount to NAV widens to 34%.

Historical financials

Year
end

Net revenue
(€m)

PBT
(€m)

EPS
(€)

P/E
(x)

NAV/share
(€)

P/NAV
(x)

12/17

43.1

39.6

4.0

2.6

12.2

0.8

12/18

(50.6)

(57.6)

(5.7)

N/A

6.2

1.7

12/19

14.5

11.7

1.1

9.0

7.4

1.4

12/20

60.7

58.1

5.8

1.8

13.3

0.8

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.

Partial exit from flatexDEGIRO

Heliad’s net income increased to €57.3m in FY20 from €11.3m in FY19, driven by a €50.9m net revaluation gain (vs a €13.9m net revaluation gain in FY19) and a €9.4m net disposal gain (vs a €0.5m net revaluation loss in FY19). The largest positive contributor to the net revaluation gain was flatexDEGIRO (c 68% of Heliad’s NAV at end-December 2020, according to our estimates) after its share price increased c 165% in the period.

The net disposal gain resulted largely from Heliad’s partial exit from flatexDEGIRO in early July 2020, which generated proceeds of c €21.5 and reduced Heliad’s stake in the company from 9.8% to 7.3% (see our previous update note for more detail). The company also reduced its exposure to listed companies MagForce and Elumeo through FY20 and sold its stake in the non-listed holding AlphaPet in January 2020 (see our April 2020 update note for more details) and Spaze in December 2020.

Exhibit 1: FY20 results highlights

€000s, unless otherwise stated

FY20

FY19

y-o-y change

Income from the sale of financial assets

26,235

5,462

N/M

Other operating income

17

23

(26.1%)

Gains from revaluation

56,895

19,334

N/M

Retirement of financial assets

(16,867)

(5,942)

N/M

Amortisation of intangible assets

-

(2)

N/M

Gains from investments and securities

84

404

(79.2%)

Expenses from the fair value assessment

(6,012)

(5,419)

10.9%

Financial revenue

344

654

(47.4%)

Financial expenses

-

(7)

(N/M

Other operating expenses

(2,615)

(2,821)

(7.3%)

Pre-tax profit

58,080

11,686

N/M

Income taxes

(801)

(337)

N/M

Net result for the period

57,279

11,349

N/M

Average number of shares (diluted)

9,873

9,873

0.0%

EPS (diluted, €)

5.80

1.15

N/M

Source: Heliad Equity Partners

Heliad’s NAV per share increased to €13.28 at end-FY20 from €7.39 at end-FY19, largely driven by flatexDEGIRO’s share price appreciation in the period. At end December 2020, the company’s listed investments (ie stocks) were valued at €94.6m (representing c 72% of its NAV), while the value of its unlisted holdings was €12.1m (9%). Following Heliad’s partial exit from flatexDEGIRO in July 2020 and minor reductions in its exposure to listed and non-listed holdings in FY20 described above, cash reached €24.5m at end-FY20 (vs €1.2m at end-FY19) or c 19% of the company’s NAV at end-December 2020 (1.6%).

We note that Heliad will be charged a higher management fee by Heliad Management (its investment manager), which we estimate will be c €3.2m based on the 2.5% management fee and Heliad’s year-end NAV. The company will also pay a performance fee on its realised profits in the period (c €3.0m based on our discussion with management). Heliad Management will recommend not paying a dividend from Heliad’s FY20 earnings (similar to last year).

Portfolio concentration remains high

Heliad’s portfolio currently includes stakes in listed flatexDEGIRO, MagForce and Elumeo, as well as the following non-listed companies:

Springlane: a retailer of kitchenware;

Libify: a specialist in manufacturing and selling mobile emergency calls, locating and tracking systems;

Capnamic United Venture Fund I: an early-stage venture capital fund based in Berlin and Cologne;

Tiani Spirit: a specialist in standardised and secure exchange of data, and of healthcare information in particular;

Grapevine World: an international holding company, which unites companies that aim to standardise data transfer; and

Muume: a platform for digital services for daily consumption and purchasing processes on smartphones.

Portfolio concentration remains high, with flatexDEGIRO representing c 68% of Heliad’s NAV at end-FY20, according to our estimates, which assume that Heliad held a c 5.2% stake at the end of this period. This represents a reduction from 7.3% post the July 2020 partial exit due to capital measures as part of the merger between flatex and DEGIRO completed in 2020. While management has reduced Heliad’s exposure to listed companies over recent months (in line with the new strategy launched post management changes in April 2019), it has not made any new investments in either listed or in unlisted companies since then.

Meanwhile, flatexDEGIRO continues to deliver solid trading. According to preliminary 2020 figures, revenue reached €261m in FY20 vs €132m in FY19 (or €191m pro forma, ie including DEGIRO), while EBITDA adjusted for non-cash expenses relating to provisions for long-term investment schemes was €114m vs €38m in FY19 (€49m pro forma). In the period, total number of trades reached 75m (vs 31m in 2019 pro forma), which was a function of the increasing customer base (1.25 million at end-FY20 vs 0.8 million at end-FY19) and above average trading activity in the period (73 trades per customer in 2020 vs 45 in 2019) amid high market volatility caused by the COVID-19 pandemic. For 2021, management guides to further growth in the customer base to 1.8–2.0 million and a total number of trades at 75–90m. flatexDEGIRO aims to increase its customer base to three million and number of trades to over 100m by 2025, including in years of low volatility. We believe that positive newsflow from flatexDEGIRO and overall strong market sentiment towards shares of online brokers continue to drive the company’s share price, which was up 26% in in 2021 to 6 April 2021.

Valuation

Heliad assesses NAV per share based on the valuation of listed and unlisted holdings. Its shares currently trade at a 22% discount to its last published NAV of €13.28 at end-December 2020. Despite a partial exit from flatexDEGIRO in July 2020, the discount to Heliad’s recently published quarterly NAV continues to largely reflect movements in the valuation of flatexDEGIRO, which represented c 68% of its NAV at end-FY20 (unlisted holdings are revalued only on completion of funding rounds, while the share of listed companies MagForce and Elumeo in Heliad’s NAV is negligible).

Following 26% appreciation in flatexDEGIRO’s share price from 1 January to 6 April 2021, we estimate that the value of Heliad’s 5.2% stake in the company increased to c €113m from c €90m at end-December 2020. If we ignore the price movements of other listed stocks and any other factors affecting Heliad’s NAV vs end-December 2020, we arrive at an underlying discount to last reported NAV of c 34%.

We believe the discount is at least partially attributable to the lack of clarity in terms of Heliad’s prospective investment strategy and the management fee it regularly pays to Heliad Management. We believe that investors may also discount the c €3.0m performance fee which we estimate Heliad will pay on realised gains (see above), although when we take this into account in our NAV adjustments, Heliad’s discount to last reported NAV narrows only slightly to c 32%.

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. Note: *Discount to NAV as reported.

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. Note: *Discount to NAV as reported.

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 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

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 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

Share this with friends and colleagues