Heliad — Market environment turning slightly more positive

Raisin (19% of Heliad’s end-March 2024 gross portfolio value), an open banking fintech that offers a digital platform for savings and investments, recently announced its FY23 results, almost doubling its revenue to €158m and achieving an EBITDA of over €20m, allowing it to reach break-even (with a net profit of €1m). Assets on its platform increased by 74% y-o-y to €57bn and it had more than 500k active consumers at end-2023. Close to €7bn of net new flows were invested by existing customers (ie who used the Raisin platform before 2023). The company also highlighted that Raisin’s average customer triples the initial invested amount over time, translating into a consistently high net revenue retention of more than 100%. Moreover, Raisin onboarded a record-high number of 72 banks in 2023. We note that the company raised €60m in a Series E funding round in March 2023. Heliad’s stake in Raisin was valued at €31.0m at end-March 2024, unchanged compared to end-September 2023.

Enpal (9% of Heliad’s end-March 2024 gross portfolio value), a ‘greentech’ business and a provider of PV leasing solutions, announced in March 2024 that it raised €1.1bn debt to accelerate the rollout of its integrated financing offering for residential solar and heat pumps. The funding consists of €1bn senior refinancing commitments from Barclays Europe, Bank of America and Credit Agricole, as well as €118m of mezzanine debt commitments from Canada Pension Plan Investment Board. The funding consists of €1bn of senior refinancing commitments from Barclays Europe, Bank of America and Credit Agricole, as well as €118m of mezzanine debt commitments from Canada Pension Plan Investment Board.

We also note that the company plans to launch its own production of solar modules at its existing locations in Germany and Europe in response to the exit of some existing producers (eg Meyer Burger) amid the lack of support of local manufacturers and competition from China. Enpal is planning to facilitate a pan-European consortium for the domestic production of solar modules. It is also advocating for targeted support for the domestic solar industry, like the EU Chips Act, which would involve in particular direct investment and operating cost subsidies. Finally, Enpal plans to build Europe’s largest virtual power plant through a joint venture with Entrix, an AI-powered optimisation and trading platform for energy storage.

With respect to Heliad’s other portfolio companies, Clark, a European digital insurance broker, posted a 35% sales increase in 2023 to €135m and achieved a positive operating result for the first time. Razor Group acquired its US-based competitor, e-commerce aggregator Perch, in March 2024. This follows the previous acquisitions of Factory14, Valoreo and The Stryze Group. Razor Group simultaneously announced a US$100m Series D round led by Presight Capital, and the Perch deal valued the combined entity at US$1.7bn. Razor’s management highlighted that the Perch deal adds significant scale to its product portfolio and paves the way for a US$1.0bn top-line business in the medium term. We also note that FINN raised €100m in a Series C round in January 2024, led by Planet First Partners, a sustainability-focused investor. The funding round was completed at a c US$650m valuation, which is above the prior round (more than US$500m).

Heliad’s 2023 annual report also included some historical details on results of investments in which Heliad held a stake of more than 20% at end-2023. This includes Burnhard (the owner of a D2C BBQ brand in which Heliad held a 47.33% stake at end-2023), which reported a net loss of €11.0m in 2022 (and a negative equity of €3.0m at end-2022). We note that Heliad led Burnhard’s €20m funding round in September 2023 and that Heliad’s management highlighted that Burnhard recently improved its profitability significantly through supply chain recovery and cost optimisation (though no recent profitability figures were disclosed).

Heliad recently led a seven-figure euro pre-series A round for ChefCoco, a corporate meal service provider in Berlin. This investment is somewhat different from Heliad’s main investment focus on potentially disruptive tech businesses. That said, Heliad highlighted that ChefCoco is benefiting from its unique approach to building and operating a central industrial-scale production kitchen, allowing it to realise economies of scale (supported by a 100% client retention rate). As result, the company is on track to reach profitability in the coming months. Heliad also underlined the business’s strong and diverse founding team, with backgrounds including international corporations, start-ups and Michelin-starred restaurants.

FlatexDEGIRO, one of the leading European online brokers (making up 33% of Heliad’s end-March 2024 gross portfolio value), reported a slight 1% y-o-y decline in the number of settled transactions in Q124 to 16.1m (and a 19% sequential rebound), despite the still subdued activity of retail investors and a lower number of trading days. In April and May 2024, the company saw increases in settled transactions of 36% and 10% y-o-y, respectively.

flatexDEGIRO reported a 25% y-o-y increase in revenue to €123m in Q124, assisted by a 10% yoy increase in commission income to €75m (with a 12% rise in commission per trade to €4.64, though management expects this to go down in Q224) and a 65% increase in interest income to €44m. The latter was supported by the recent interest rate normalisation, as the company is set up as a fully-fledged bank with a fully collateralised book. Its interest income includes interest earned on customer deposits recycled into margin loans and overnight central bank deposits. We note that the company gathered net cash inflows from clients of €1.8bn in Q124 (up 4% y-o-y) even though it does not pay any interest to customers (the company’s total assets under custody, including securities, reached €58.0bn, up 29% y-o-y and 12% q-o-q).

Gross client additions reached 121k in Q124 (up 8% y-o-y and 57% q-o-q), and the annualised client retention rate stood at 98% in Q124. Importantly, this has been achieved when marketing expenses fell by 33% y-o-y to €11.5m, translating into a fall in acquisition costs per client of 38% to €95 in Q124. Personnel expenses increased by c 16% y-o-y to €24.9m, due to an average 8% salary increase implemented in 2023, as well as additional headcount related to the BaFin audit. That said, management expects the year-on-year change to be lower in the coming quarters due to a high base effect.

As a result, flatexDEGIRO’s EBITDA went up by 177% y-o-y to €54m (and was up 4% vs Q423), while net income went up by c 341% y-o-y €30m (though was c 3% below Q423). Management now expects FY24 results to come in at the upper bound of its earlier guidance of revenue and net income growth of 5–15% and 25–50%, respectively. The re-application of credit risk mitigation techniques led to a significant increase in its CET-1 ratio to 26.89% at end-2023 from 19.94% at end-2022. The company also highlighted that MSCI recently upgraded its ESG rating by two notches from BB to A in April 2024. flatexDEGIRO currently trades at an FY24e P/E ratio of 9.2x, based on the current LSEG consensus.

At end-December 2023, Heliad had €10.4m of gross cash and equivalents and a net debt position of €4.5m. Its outstanding debt of €14.9m at end-2023 represents the drawn part of its €23m credit facility secured on Heliad’s stake in flatexDEGIRO (valued at €53.4m at end-March 2024). The drawn amount represents c 9% of Heliad’s end-March 2024 gross portfolio value. Although the company is not disclosing the gross cash and net debt figures in its quarterly updates, we note that Heliad had net other liabilities of €8.5m at end-March 2024.

Last year, deteriorating macroeconomic conditions, along with a de-rating of public equity markets and a normalisation of monetary policy after the ultra-low interest rate environment of previous years, had an impact on both deal volumes and valuations in the VC market, given that VC-backed companies are long-duration assets and therefore more sensitive to a changing rate environment. As a result, VC markets were soft, with longer due diligence processes extending deal timelines (with time needed to complete a fund-raising now being around three to six months) and limiting exit activity.

That said, we note some tentative signs of revival in the broader IPO and private M&A markets. Reuters recently indicated, citing Dealogic data, that Q124 global M&A volumes increased by 30% y-o-y to US$755.1m, mostly on the back of a pick-up in mega-cap deals. The recovery is assisted by stabilising interest rates and improving equity markets. European VC deal value increased by 19% y-o-y to €16.3bn in Q124 (though deal count was down c 46% y-o-y, see Exhibit 4), based on PitchBook data as at end-March 2024, which was assisted by the €4.75bn megadeal of the cleantech business H2 Green Steel in January 2024. The second- and third-largest deals in the quarter included the €399.2m funding round of the fintech company Monzo and the €384.4m round of Mistral AI, which subsequently raised another €600m in equity and debt funding at a c €5.8bn valuation. The Q124 figure is still 54% lower than the Q122 level, hence activity remains modest for the time being. According to KPMG’s Venture Pulse Q1 2024 report, VC deal value in Germany fell slightly to US$1.8bn in Q124 from US$1.9bn in Q423, with several factors keeping VC investors restrained. These factors include, among others, high energy costs, concerns related to global competitiveness, elevated geopolitical uncertainties, as well as a lack of exit opportunities.

That said, fund-raising volumes in recent years, coupled with cautious capital deployment in 2023, left VC funds with a significant amount of dry powder, which may support deal activity in 2024. Despite this, European VC fund-raising was quite resilient in Q124 at €4.6bn (across more than 47 vehicles) compared to full-year figures of €19.0bn in 2023 and €30.6bn in 2022, according to PitchBook.

Meanwhile, European VC exits remained subdued in Q124 at €1.9bn (lower than the €3.4bn in Q123 and well below Q122 at €14.6bn, see Exhibit 5). European IPO markets remain difficult for unprofitable VC-backed businesses, making the sale to trade buyers a more likely exit route at present. That said, we note that the management of Molten Ventures highlighted recently that FY25 (ending March 2025) is showing promise of delivering a more normalised level of realisations and that it expects £100m realisation proceeds, meaningfully higher than in the last two financial years.

The share of down-rounds in the European VC market stood at 21.7% in Q124, which was only a slight increase from 20.8% in 2023 (vs 14.5% in 2022), according to PitchBook (see Exhibit 6). Some further valuation headwinds cannot be ruled out, given that many VC-backed companies delayed new funding rounds in recent months by reducing their cash burn rates. Still, it seems that the European VC valuation environment is gradually stabilising, with median deal sizes increasing across all stages in Q124. Moreover, the recent onset of the rate cut cycle of the European Central Bank (with a 25bp reduction of the main interest rate in June) may prove supportive to private company valuations. That said, we note that the US Fed’s chair recently signalled only one rate cut until the end of 2024.

In the long term, we consider the European VC market a compelling route to gaining exposure to the European tech sector, especially given the limited options in European public markets (eg in software-as-a-service), companies staying private for longer and superior historical VC returns versus public markets. Furthermore, we note several government initiatives across Europe aimed at supporting the development of an innovative tech ecosystem, such as the UK’s Science and Technology Framework (launched in March 2023) and the Mansion House reforms (unveiled in July 2023), or Germany’s €1bn VC startup growth fund of funds launched in November 2023 with the federal government and development bank KfW as anchor investors.

Given that most of Heliad’s private investments were made in 2021 or later (and are mostly valued close to investment cost), and the fact that both Raisin and Enpal do not seem to be considering IPOs in the near term, we do not expect any major portfolio exits at this stage. Because of this, and the fact that Heliad’s management earmarked 70% of available liquidity for follow-on investments (with the remaining 30% used mostly for new Series A investments), we also anticipate that Heliad’s new investments will be moderate in the near term. We note that Heliad’s liquidity requirements for its ongoing expenses are relatively limited as it is self-managed and generates recurring income from third-party mandates, as mentioned above.